ARE BUSINESS OWNERS IN CHAPTER 7 LIABLE FOR CORPORATE DEBT PART 2

Imagine if the situation were reversed. Let’s say that Mr. Thompson was actually using FPL as his alter ego and inter-mingling his personal funds with company funds. For instance, he buys a house in Beverly Hills using company funds. He buys a twenty carat diamond ring for his wife using company funds. He also uses company funds to pay for his children’s college tuition and expenses. Because of these circumstances, the bankruptcy court allows plaintiff to piece the corporate veil of FPL and by so doing, allows the claim to proceed against Mr. Thompson, will plaintiff’s claim be excepted from discharge in Mr. Thompson’s bankruptcy?

The court said NO. The court found no basis for basis for excepting the plaintiff’s claim from discharge, even if a basis for piercing the corporate veil existed. The court found that this was “simply an unfortunate situation whereby plaintiff was caught in the downward-slide of a business and left unpaid when insufficient funds were left at the end of the day to pay all of the company’s obligations.” The court ruled that Mr. Thompson was not personally liable for his company’s debt to the plaintiff, but even if he was, the debt was dischargeable. So, in our example, Nobama is off the hook. The Kodak theatre’s claim against him for $74 million will not be excepted from discharge in his Chapter 7 case.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626)284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.