Legal Question in Credit and Debt Law in New York

What happens to shareholders when corporation declares bankruptcy

I am currently a 19% shareholder in a company(s Corp)that is experiencing financial difficulties. If the company declares bankruptcy, what are my personal obligations to repay any debt incurred by the company? We have an SBA loan from a bank, which required the shareholders to sign personal guarantees when issued 3 years ago. Can the bank go after my personal assets for repayment of this loan?

I also have incurred a substantial amount of personal credit card debt that was used to fund business expenses. I realize that I most likely will be required to pay these credit cards. Will personal bankruptcy filing protect me in any way, if my company goes bankrupt?


Asked on 2/14/03, 4:06 pm

1 Answer from Attorneys
Rod Kovel Rod Kovel, Attorney at Law

Re: What happens to shareholders when corporation declares bankruptcy

Dear Reader:

Please be advised that in answering, I am not forming an attorney client relationship with you, and that this is for informational purposes only, especially as I have not seen your documents or gone over the situation with you in depth.

That said, ordinarily, as a shareholder you should not be liable for the corporation's debts. There are some very significant exceptions, however, such as trust fund taxes, anything looted from the company's assets, wages, and some others that you may be responsible for under specific circumstances too detailed to cover here. You may also be responsible if the company does not have good books and it is deemed an "alter-ego" of the owners. If it is a public corporation, then there may be other liabilities too.

As far as money lent to the company by personally purchasing items on your card, I suspect you are stuck for it unless you have collateral.

It will be best to speak with a lawyer in your area, and better yet if he/she concentrates on bankruptcy and collection matters.

Rod Kovel

Attorney at Law

516-312-9900

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Answered on 2/14/03, 5:12 pm


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