Personal Ch 7 with Sub-S - possible pre-discharge lawsuit? unpaid wages?

[betterlife13]

I have two questions with regard to our personal Chapter 7 and our personal Sub-S. I hope it is okay to put both questions in the same post, so as to avoid multiple topics. Mods, if I should be in the small business thread instead of Chapter 7 thread, many apologies... Okay, so here goes:

1. We filed our personal Ch 7 at the end of May with a sole shareholder Sub-S in the picture, which we plan on dissolving. The name of the Sub-S was also listed on the petition. Among the debt of the S corp was an SBA loan on which we signed as personal guarantors, with a third lien on our home, which we plan on surrendering.

We received an acceleration letter today from the SBA, addressed to the Sub-S. Can the SBA proceed with a lawsuit against the Sub-S prior to our discharge on our personal BK?

2. My husband has continued to work for the Sub-S on a project which the Sub-S had bid, but not completed as of our filing date. He has worked exclusively for the Sub-S since our filing, but has not taken any pay for his work from the Sub-S. Is there any problem with the Sub-S paying him for work performed after our filing? If not, is it best to do so before or after our 341, which will be in a couple of weeks? Should we consider waiting until our discharge, and then pay him for the period subsequent to our filing until discharge and dissolution of the company (which we will do as soon as we are discharged, since the Sub-S has some minor assets)?

Would it be okay to have a legal document that essentially forgives some of the wages he is owed in exchange for some of the value of equipment and a vehicle (which was listed in our petition, but not exempted) that we wish to purchase from the Sub-S to start another business?

Any advice, thoughts, etc. as to either or both of the above are greatly appreciated!

[despritfreya]

Can the SBA proceed with a lawsuit against the Sub-S prior to our discharge on our personal BK?

Yes. You filed bk, the corp did not. Nothing wrong with any creditor of the corp trying to collect from the corp including the filing of a suit against the corp.

Is there any problem with the Sub-S paying him for work performed after our filing? If not, is it best to do so before or after our 341,

I see no problem with the taking of a salary for work done post petition and I have never had a trustee question this so long as the amount taken is reasonable. I understand that the Trustee controls the stock in the corporation but, at least in my district, this has not created problems. You might want to discuss this with a local bk attny to see if the same holds true in your district.

Would it be okay to have a legal document that essentially forgives some of the wages he is owed in exchange for some of the value of equipment and a vehicle (which was listed in our petition, but not exempted) that we wish to purchase from the Sub-S to start another business?

This is much more problematic. 1) If the equipment and vehicle is owed by and/or titled to the corporation, it really did not belong on Schedule B of your personal bk. If it belongs to you there is nothing for the corp to give to you. 2) Assuming the equipment/vehicle belongs to the corporation, my guess is that the SBA has a blanket lien on corporate assets therefore the corporation has no right to transfer the items to anyone. They belong to the SBA. If there is no lien, I still might have a problem with the transfer of hard assets since the corporation has creditors. You really need to discuss this issue with an attorney to make sure you are not creating problems down the road.

Des.

[justbroke]

I could not add anything to what Des wrote. I, however, need to say this. Please be careful with transferring assets from the Sub-S. That is a separate entity and with the SBA, as Des wrote, there could be lien implications.

[betterlife13]

Delayed thanks for the replies. Bad enough going through all this without the additional headache of the Sub-S... I have gone through the SBA papers, and the only guarantee/lien is against our home. Nothing on equipment, vehicles, etc. I assume that the proper thing to do, at some point, is to purchase whatever assets we wish from the Sub-S at fair market value and deposit that money into the Sub-S bank account, and just keep that bank account open, even after dissolving the Sub-S?

If we get our discharge before a lawsuit is filed, and then dissolve the Sub-S properly, would we still have to defend a lawsuit against a dissolved corporation? Namely, just wondering if we'd have to pay an attorney out of our pocket, etc.?

Thanks again -- biting nails here -- 341 coming up this week...