Dissolution vs Bankruptcy: 6 Debts That Survive Closing the Entity

An LLC or corporation receives no discharge from a certificate of dissolution, and it receives none from Chapter 7 either. The Chapter 7 discharge in section 727(a)(1) is reserved for individuals, so the company that files and the company that dissolves reach the same end state: an entity that no longer operates, owing whatever it could not pay.

The choice between them decides something else, namely who does the winding up and what that person may pursue. A state dissolution statute hands the job to the owners. A bankruptcy petition hands it to a trustee. The six debts below outlive either ending, and each one behaves a little differently depending on which door the company used.

1. The Personal Guaranty Was Never the Company's Debt to Lose

A guaranty is the owner's own promise, made in the owner's own name, and neither ending touches it. In bankruptcy, section 524(e) leaves the liability of every co-obligor on a discharged debt untouched, and a company in Chapter 7 does not even get the discharge. In dissolution, the claims procedures that states offer are aimed at the entity and its distributions. New York's Business Corporation Law section 1007 lets a dissolved corporation publish a notice requiring claims by a date at least six months after first publication, and late claims are then "forever barred as against the corporation, its assets, directors, officers and shareholders." The words are broad. They do not reach a guaranty the owner signed as a separate obligor, and following the procedure releases no one from a contract of that kind.

Consider a hypothetical restaurant company that closes owing a funder $140,000 under an agreement the owner guaranteed. The company dissolves, publishes, waits six months, and distributes nothing because there is nothing. The funder files no claim against the company, since there is no point. It sues the owner on the guaranty instead, and the dissolution file is irrelevant to that suit. The same funder, had the company filed Chapter 7, would have received a notice, perhaps a small distribution, and then sued the owner on the guaranty all the same.

The guaranty is where most closing plans fail, if we are being accurate, because the plan was drafted for the company and the liability belonged to the person. Resolving it requires either the funder's agreement to release the guarantor or the owner's own bankruptcy case, which is a separate filing with separate consequences.

2. Withheld Payroll Taxes Follow the Responsible Person Out the Door

Federal law makes a "responsible person" who willfully fails to pay over withheld employment taxes personally liable for a penalty equal to the unpaid trust fund amount, under 26 U.S.C. 6672. Neither ending changes that. In bankruptcy, a tax "required to be collected or withheld and for which the debtor is liable in whatever capacity" carries priority under section 507(a)(8)(C), and an individual cannot discharge it. In dissolution, the IRS will not close the business account "until you have filed all necessary returns and paid all taxes owed," and New York goes a step further for corporations: under Business Corporation Law section 1004 the Department of State will not file a certificate of dissolution without the Tax Department's consent attached.

A corporation that owes New York tax, in other words, cannot finish dissolving at all.

3. Sales Tax Collected From Customers Stays With the People Who Collected It

New York Tax Law section 1133 makes every person required to collect sales tax "personally liable for the tax imposed, collected or required to be collected," and section 1131 extends that category to officers and responsible employees of corporations, managers of LLCs, and "any member of a partnership or limited liability company." The rule is New York's; other states write their own. Where it applies, the entity's ending, by either route, leaves the individual exposure where it was.

4. The Last Payroll Can Land on the Largest Owners

In New York, section 630 of the Business Corporation Law makes the ten largest shareholders of a privately held corporation jointly and severally liable for wages owed to its employees, and LLC Law section 609(c) does the same for the ten members with the largest ownership percentages. The claims are conditioned: the employee gives written notice within 180 days after services end, and suit follows within 90 days after an execution against the company comes back unsatisfied. Bankruptcy gives unpaid wages a priority of up to $17,150 per employee, the figure in force since April 1, 2025, for wages earned within 180 days before the petition or the end of the business, whichever came first. Priority decides the order in which the estate pays. It creates no personal liability and removes none.

5. A Lien Rides With the Collateral, Wherever the Collateral Goes

A perfected security interest generally continues in the collateral after it is sold or transferred, unless the secured party authorized a disposition free of it, under the Uniform Commercial Code as New York enacted it in section 9-315. An owner who dissolves the company and moves the equipment into a new venture has moved the lien along with it, the way a tenant who carries the furniture to a new apartment also carries the landlord's claim stamped on the underside of the sofa. The Supreme Court described the underlying principle in Johnson v. Home State Bank: a discharge extinguishes an action against the person but leaves the creditor's action against the property intact.

Bankruptcy offers one thing dissolution does not. Under section 363(f), a trustee may sell estate property free and clear of a lien, but only in listed circumstances, including the lienholder's consent, a price exceeding the value of all liens on the property, or a lien in bona fide dispute. Whether any MCA funder's filing is a valid, perfected lien on anything is its own question; the UCC filing proves only that something was filed.

6. Money Already Distributed to the Owners Can Be Called Back

Delaware's dissolution statute limits a stockholder's liability for the corporation's claims to the lesser of the stockholder's pro rata share of the claim or the amount distributed to that stockholder, under section 282 of the General Corporation Law. The cap presupposes liability. Distributions taken on the way out remain exposed to the corporation's creditors up to what was received.

Bankruptcy sharpens the same exposure and assigns it to someone paid to pursue it. A trustee may avoid transfers made within two years before the petition with intent to hinder, delay, or defraud creditors, or for less than reasonably equivalent value while insolvent, under 11 U.S.C. 548; may borrow a state's longer voidable-transfer period through section 544(b); and may recover preferential payments to insider creditors, such as an owner repaid on a loan to the company, made within one year before filing. Section 550 then lets the trustee recover from the person who received the money. Whether a trustee will think a modest distribution to a departing owner worth chasing depends on the trustee's judgment and the size of the estate, and no owner can forecast it.

What the Choice Between the Two Endings Decides

A company with no assets, a handful of creditors, and owners who signed nothing can often dissolve in an orderly way. A company with assets to distribute, creditors fighting over them, transfers that will need explaining, or a funder already enforcing a judgment usually belongs with bankruptcy counsel, because a trustee supplies the neutral process that a dissolution run by interested owners cannot.

Neither route resolves a guaranty. That is where Delancey Street works. The company is not a law firm and does not wind up companies or file cases. Its role is bargaining over funder balances, beginning with a free, confidential look at the file, while the legal questions a closing raises go to counsel licensed independently of it. A release that names the guarantor is worth asking for before the certificate is filed, while the company still has something to offer and a reason to be asked.