Hello - I have had a retail business for 5 years. We have not yet been profitable and with the recession, things are going downhill fast. We have approx $70K in credit card debt and $40K in vendor debt. We also have our initial loan (from family) of $250K.

We have decided to close the business. We are a C corp -- what is our obligation to everyone? Inventory is valued at approx $125K, but realistically we will probably only get 1/2 of that during a fire sale.:(

Technically, your "obligation" is to pay everyone back. That's your legal obligation and the only way to legally get out of it is filing bankruptcy (and having it approved of course). Or you can just not pay it and be hounded forever and ever.

Typically, for a c corp they can't go back on your personal assets, although there are some exceptions. (I don't recall what they are and they're probably fairly unusual.)

One question is about that "initial loan." Is that an official loan from family members, or are you referring to your capital? They aren't the same thing and it's very important that you distinguish them. If this is truly a loan, it gets lumped in with the rest of your liabilities, meaning you owe $360K.

If, however, you're meaning that's the initial investment that family members put into the company... well, just like any investment, they simply can lose that cause those creditors come first. There's no obligation to "pay back" investment. Also, if that's investment and you have any other assets that can be sold, you're getting much closer to actually being able to pay off the other debt. Whereas, if that's really debt, that's a different story.

Quite personally, I think this is more of a legal issue than a finance issue. There is a bankruptcy forum under Money & Services. You may want to ask about it over there. Even if you don't want to go that direction, they might be able to advise about how to handle this. Or even under the law section.

One bit of advise: if you think there's a good chance you could file bankruptcy, don't pay anyone. I know they've changed the laws, but I think it's more about making it more difficult to file, or trying harder to re-structure, etc. It used to be you couldn't play favorites with the creditors, especially family. There's some time limit, like anything paid back with the last x months is considered in and they'll try to re-structure it so it goes to whom they want it to go to. So it's best just not to pay anything and let the courts decide. If the "debt" to the family is truly debt and they care to be nice and forego their debt, and you have enough assets to cover the rest, you could have course pay all that off and avoid the courts.

Now, an important note. The creditors could settle for a percentage of the debt. Especially credit card companies. This might sound weird, but just stop paying them. They don't really pay attention and take you seriously unless they aren't getting their money. Tell them you're seriously considering filing for bankruptcy, even if you're not. (And don't pay attention when they tell you can't or something. They're trained to scare you and tell you anything, including lies, just to spook you into doing what they want. Even though you do have a serious obligation to your creditors, this is a situation where you need to maintain some control over how things go.) If they think that debt might be lost in a bankruptcy, they'll be more cooperative. They might settle for like 60% or whatever. If they'll do that, I'd get it in writing that the debt has been "paid in full" or "settled in full." As for the vendors, that's trickier. Is any of that debt for the inventory you have? If so, any possibilities of them taking it back? If they have another buyer, that might be a better option for them than losing their money. Just some options to think about.

Or you can ignore it and be hounded forever and ever. But the obligation isn't just going to go away like magic.

Again, I'd suggest heading to the law forums or the bankruptcy forum.