Personal Bankruptcy s-corp & chapter 11

[aes523]

My mother owns a business (s-corp) and has been hit pretty hard by the economy, cheaper competition and a maxed out credit line. She's contemplating chapter 11, and as the sole owner understands that she's ultimately liable for the debt, but doesn't want to lose her house. Her plans were to pay down the debt and sell the company or just close it, but it doesn't appear that that's going to happen. How long would it take for her to revoke s-corp status, reverting to a c-corp - and is this even possible? What might other options be?

 

[Michael Wechsler]

Under what theory of liability are you assuming that your mother is personally responsible for the debts of the corporation?

 

[aes523]

only that she is sole shareholder and that whatever liabilities the company has ultimately flow thru to the owners. Is she mistaken?

 

[Michael Wechsler]

If you have an s-corporation then you should have the same protections as another corporation. Did your mother keep the corporations assets separate from her own? Were the books kept like a company, as well as a separate bank account? If they were, situations such as this one are one primary reason for setting up an s-corp.