You have put your time and money into your business. You want it to succeed, but it is challenging in this financial climate. You face significant personal and business debt. What should you do?
Some business owners continue to build debts and refuse to file bankruptcy because it feels like failure to them. Yet, filing for bankruptcy does not have to mean failure. In fact, it could give you the building blocks you need to continue your business or start anew.
Personal Liability for Business Debts
Depending on the type of business you own and the contracts you have signed, you may need to file both business and personal bankruptcy.
This is especially true for sole proprietorships, where business owners are legally on the hook for their business debts. Even some partnerships and LLCs involve agreements that pass liability on to partners and owners. For example, an owner may have signed a personal guarantee in order to obtain a loan for a business.
In these cases, the business bankruptcy may clear the business of debts, but because the business owner is personally liable for the debts, the owner will also need to face the creditors him or herself.
This is where personal bankruptcy comes in. By filing for both business and personal bankruptcy, you are allowing yourself to take positive steps toward a better financial future. Even if you need to close the doors to your business, you will not also face significant personal debt. Through a Chapter 7 bankruptcy or Chapter 13 bankruptcy, you will be able to evaluate your financial situation, discharge debts and start on the road toward financial recovery.
Source: The Wall Street Journal, “The Double Whammy of Bankruptcies,” Simona Covel, Sept. 28, 2009.