You may have heard that bankruptcy can help you get a fresh start if you have old medical bills or credit card debt, but did you also know that bankruptcy can sometimes help wipe away business debt?

While for many owning a small business or running your own startup is a dream come true, sometimes that dream can turn into a financial nightmare. When your business is struggling to pay its bills you may start to worry about the business creditors coming after you personally to pay the debt.

If your business was a sole proprietorship or a partnership you are automatically liable for all your business debts. If your business was formed as an LLC and a corporation you may not be personally liable to the creditors because your business acts as a separate legal entity who is liable for the debt.

However, simply being an LLC does not mean that you are off the hook, often times owners of small business and startups actually agree to be personally liable for the businesses debts. This is because when a business is just starting out it will not qualify for a loan, such as a small business loan or credit card. When this happens the loan agency will often require owners of the business to sign a personal guarantee, or other agreement where they agree to personally pay the debt or put up their personal property as collateral for the business loan. Most Credit Cards require a personal guarantee for a business card. You will need to include all business cards that you have signed a personal guarantee for, even those issued in the businesses name.

If you are on the hook for your company’s debts, you can usually eliminate your personal liability by filing for Chapter 7 bankruptcy. Be aware that while Chapter 7 bankruptcy can discharge your personal obligation to pay back business debts, creditors can still go after the assets of your business to satisfy their debts, and even after other owners of the business if they agreed to be personally liable as well. In a Chapter 7 filing, your ownership in a business may be considered an asset that can be liquidated by the Bankruptcy court so be prepared that while filing for bankruptcy does not automatically close your business, your personal bankruptcy can be affected by your business and your business could be affected by your personal bankruptcy.

Bankruptcy may be able help. Filing for bankruptcy may either allow you to discharge your personal liability for the debts entirely, or you may be able to get into an affordable monthly payment plan, based on your income.

If you’re curious about the different options that bankruptcy might offer to clear away debt please call Limitless Law at (360) 685-0145 to speak to a qualified attorney today.

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