Expert: Christine Janklow - 10/31/2007

Question
I started a business with my brother in 2003 (C corporation), a startup to launch a new product. After incurring about 20K in various startup and marketing expenses, the business failed and today we are determined to close it down.  The debt is on two separate credit cards.  We’ve never had payroll, employees or revenue.  Researching our options for dissolving the company, I have consulted with three different attorneys, and now I more confused than before about my options.  Here are their separate answers:
1-   Don’t do anything, don’t pay anything, let it die off. (Hm?, what about CA state taxes?)
2-   You must file your dissolution paperwork in the right order or you will get in trouble.
3-   Although the credit card debt is unsecured, the credit card companies can still come after you personally (through the court) and get hold of your personal assets (house, car, etc…) if you signed a personal guarantee.
Although both of us have incomes (other jobs), we cannot truly afford to pay off the company’s debt.

Questions:
1-   True or false: The debt is the corporation’s liability and it protects me (and my brother), as an officer and shareholder from its debt?
2-   The credit card agreement fine print states that “… THE SIGNING INDIVIDUAL IS PERSONALLY LIABLE FOR ALL SUCH AMOUNTS DUE … PERSONAL LIABILITY MEANS AN INDIVIDUAL OBLIGATION WHICH MUST BE PAID BY HIM/HER EVEN IF THE BUSINESS BECOMES INSOLVENT OR INVACTIVE OR CEASES TO EXIST.  Does this legally constitute a personal guarantee?
3-   Do you recommend that I send a letter to the credit card companies declaring that we have/will be dissolving the company and that it will not be paying off the debt.
4-   If I file to dissolve the company, do I lose my liability protection?
5-   What is debt settlement? Looking at your profile, I am curious about some the questions your offer.  I’d like to learn about this option.

Thanks


Answer
Dear Ernest:
Thank you for your question. As it seems quite loaded I will attempt to answer portions that relate to debt liability only.

As it relates to corporate debt, if your corporation opened trade lines utilizing a tax id only, NOT a SS# or with signature of personal guarantee, than it would be considered your company's responsibility for repayment, not yours.
If a personal guarantee was signed or agreed to as in your question 2, than collectors do have a right to look to you for debt repayment. I can not advise on the legality of bank terms, sorry.
If you can determine the liability of your business and intend to close it, than you could send creditors notice but some may still attempt to collect the debt.
As for debt settlement it is an excellent option for debt that you have guaranteed, even for your business because it will allow for you to restructure the debt and repay it for less than is owed, without the need for a bankruptcy.
Feel free to contact me through our website www.franklinmediation.com for more information. I hope this helps and encourage you to do your best to tie up loose ends. Also please take a moment to rate this answer so others may benefit as well.
Respectfully,
Christine Janklow