Can an S-Corp file bankruptcy? And if its outstanding debt is loans to its (2) shareholder/owners, does that make a difference? And supposing it could, would the cancelled debt be COD to the 2 owner/shareholders as a pass-thru item on the K-1's? I am having a hard time getting my head around this one.
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S-corp bankruptcy
An S-Corp can file bankruptcy just like any other corp or individual. The outstanding debts in the names of the shareholders could possibly be converted to equity, maybe??. Then there would be no S-Corp cancellation of debt that would flow back to the owners.I would put a favorite quote in here, but it would get me banned from the board. -
Well, it seems the loans are FROM the shareholder/owners TO the SCorp. It owes them the money. So the corp would be insolvent, since it does not have enough assets to pay them back. That leaves the lenders SOL. Do they have a deduction somewhere in here? I would think they have a loss on what they paid for the (now worthless) stock. But what about the debt?Comment
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