Principals and Spouses

Assuming that the principals have constructed a viable corporation, they should be insulated from corporate debt, unless they have signed guarantees. This usually means that they will be equally liable for all bank and SBA debt, but personally liable only on some trade debt.

In Texas, the separate property of the spouse is not liable for the business debts of the other spouse. The community property of both, however, is liable for the business debts of either spouse. So, the wife is protected if she did not sign guarantees.

If the corporation is no longer viable, the normal course is to file a bankruptcy for the principal only, and permit the corporation to be closed by creditors and at an advantageous time. Generally there is but one reason to file a Chapter 7 for an insolvent corporation and that reason is to calm the waters of conflict, to end paying attorneys for defending the corporation and to give the collection lawyers an excellent reason that they can give their clients for not succeeding in their collection efforts. They generally close their files.

If there is no corporation the same holds true for the spouse. And in either case, the spouse does not have to file.

If the corporation is solvent and there is equity and future value to preserve, the principals are the prime movers in a Chapter 11.

Charles Chesnutt