Are the S Corp and LLC Debts Debts Going to Cause Us to Lose Our Home? – Sally

“Dear Steve,

Bankruptcy Questions??? To file or not to file????

My husband has had an S corp for 12 years, he is the sole owner and whilst business was good he was paying all his bills and the mortgage. A couple of banks also gave him Credit Lines of up to $80,000 based on his tax returns. He had to give a personal guarantee on these. Amex also gave him a Business Card and he owes $8000 on that.

He tried to work it out with the Banks, by asking for more time to pay. His business has lost money for the last 3 years and all of our savings have been depleted. He has no assets as he sold some of the tools of his trade to make ends meet.

When we could no longer pay our mortgage, my parents bought the house we live in, and paid of the mortgage and the home is now in my father and my name. They knew we were struggling and asked us to pay rent when we could afford it. We owe them 10 mths rent.

The bank closed down the S Corp account my husband had and he opened a new LLC and switched banks. He is self employed and whenever he gets any work it now goes through the LLC.

He is still not getting much work, so the cash flow is terrible and our relatives have been helping us to pay utility bills and grocery bills. In the meantime the Banks have handed over the debts to collection agencies and they are calling and harassing us, one even threatened to send a Private Investigator to check his assets. Should my husband file for bankruptcy?

If he does will he have to close down his LLC? Will he be able to work again? Will they ask for all his Bank Account details? Even the one he has for the new LLC? Or will our tax returns suffice? As they show huge losses.

He also has some small vendors that he owes money to, who were owed through his S corp, he does not want to include them in the bankruptcy as he has agreed to pay them when he gets work, Can he leave them out of it? Our must he include all debts? Can they come after the house? Which is no longer in my husbands name? Thank you for answering my questions.


Dear Sally,

Let me preface my answer by first saying that I hold every debtor dear. I feel the pain and try my best to help people in a loving way. But sometimes tough love is needed. And now is one of those times.

Because your husband have been unable to properly deal with your situation you are punishing the people around you that love you. There is no reason why you should be borrowing money from friends and family to pay bills or not paying rent to your parents. You need to step up and take responsibility for this mess.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

I recognize that this situation has been brewing for quite some time. It is doubtful that the business has been profitable for a long time if you previously had to supplement it with income from a saving account that is now long gone.

On top of all that you have others, the vendors, that counted on you for payment and they are in the same situation as you.

Now is the time for you to take responsible action to resolve this situation now.

I’m not even going to go into the fine details about your situation because you must go and talk to a local bankruptcy attorney. Talking to a bankruptcy attorney does not mean you are going to file, but in this case you should. You need to sit down with a bankruptcy attorney in a free bankruptcy consultation and get all of your questions asked and answered.

This is hard, no doubt. But you owe it to the people you love and who counted on you to properly address your situation so you stop dragging them down with you.

Your husband might just be able to do a business bankruptcy but it is really going to depend on if he had to personally guarantee the loans and American Express card. The bankruptcy attorney will explain this to you.

Go and meet with the attorney and report back on what you decide to do.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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