If you’re a small business owner struggling with debt, filing for Chapter 7 Bankruptcy can help you to get back on your feet. Whether you will be held personally liable for your business debts depends on the structure of your business. Continue reading to learn about the specific factors in small business bankruptcy that can leave you personally accountable for debts.
Determining Personal Liability in Small Business Bankruptcy
- What type of business entity is the business? – Whether you formed a specific business entity and the type of this entity largely determines the responsibility for business debts.
- Sole proprietorship – If you didn’t form an entity and are a sole proprietor, you may be responsible for all business debts. You and the business are one and the same, under law. As a result, filing for business bankruptcy equates to filing for personal bankruptcy.
- Limited partnership, Corp, or LLC – In most cases of these three entities, you wouldn’t be responsible for business debts. This is because each of these entities can file for bankruptcy on their own, under law. Below are two exceptions.
- Did you sign a personal guaranty? – This only pertains to limited partnerships, corporations, and LLCs. If a creditor required you to sign a personal guaranty, by agreeing to do so you assumed responsibility for all business debts. Failing to pay business debts prior to the company’s going bankrupt could result in them being reported to credit bureaus.
- What types of business taxes did you owe? – If left unpaid, some business taxes are your personal responsibility to pay. You must transfer trust fund taxes, taxes withheld from your employees’ wages, from your business to the Treasury. For owners of limited partnerships, corporations, or LLCs, failure to do so will result in your being held personally responsible for them, which can seriously hurt your credit.
Not many people know the ins and outs of bankruptcy law. If you are a small business owner who’s considering filing for bankruptcy, contact an experienced bankruptcy attorney before doing so.
Garland & Mason, LLC is a New Jersey bankruptcy law firm with professionals eager to help you find the best route to financial freedom. We offer free consultations to people thinking about bankruptcy.