Business Bankruptcy Planning: Who Is Liable

Understanding the debts of a business is the starting point when considering bankruptcy.

A gating question for those in charge of a struggling business is to understand just who is legally liable for each debt.

Some debts may fall to the individuals alone.  Some may be just corporate debts.  It becomes complicated when both shareholder and corporation are liable.

To plan a possible bankruptcy filing and its impact on those who don’t file, use the table below.

Examine each business bill, lease, or agreement and enter it in one of these columns:

 

Business Debt Responsibility

Debt of CorporationDebt of Corporation & ShareholderDebt of Shareholder Only

By doing so, you will get a handle on who is exposed if the bill isn’t paid: the corporation or the individuals or both.

Why?  Because the discharge of one entity won’t eliminate the liability of any other entity.  More particularly, the shareholder’s discharge in bankruptcy won’t relieve the corporation of its responsibility for that discharged debt.

For individuals

Remember, too, that an individual whose debt is primarily business and/or tax debt is not subject to the means test.

About the Author
 
 
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is know for energetic representation of clients and her command of bankruptcy law.