Owning a small business requires a lot of costs, whether that is through payroll taxes, permits or licenses. If you are a small business owner and you have a lot of debt that you are unable to pay, creditors have the right to take legal action. Before you determine whether to file bankruptcy, small business owners need to evaluate personal liability.
Personal liability depends on how you structure your business and if you guarantee debts. To go out of business, a business does not necessarily need to file bankruptcy. You may also liquidate your assets and allow the operations to stop on their own. The difference between filing bankruptcy, and self-liquidation, is that in a self-liquidation, creditors are able to recover debts from the assets of the business, but if there are no assets, creditors can file collections lawsuits against you if you take on personal liability.
If you are a small business owner, you and the company are one. Small business owners take on personal liability for all of their business debts. If there are not enough funds from the small business to pay creditors, creditors may go after the owner’s personal assets.
This can be risky for small business owners who take on personal liability because not only are they risking loss of their business but they are potentially risking loss of their homes or cars as well. Bankruptcies stay on your credit report for up to ten years, and can make it difficult for a small business owner to open another business down the line.
Understanding personal liability for business debts is a step in the right direction in deciding whether to file bankruptcy. Before filing bankruptcy, small business owners should seek advice from an experienced bankruptcy attorney who is able to address any questions or concerns about these matters.
Thought of the Day:
“Our prayers are answered not when we are given what we ask, but when we are challenged to be what we can be.”