What Happens To Your Personal Credit Score If Your Business Files For Bankruptcy?
Walking away from a business venture after you have invested so much hard work in it, but sometimes closing a company is the only way to stop the financial losses you have incurred from an unsuccessful business project from getting worse. Filing for bankruptcy protection can be an effective way to make a clean break from your previous financial mistakes by discharging some of your debts so that you can focus on your current financial obligations. Did you know that businesses have the right to file for bankruptcy protection, just like individuals do? If you are not careful, however, filing for bankruptcy for your business can make your personal debt obligations bigger instead of smaller and can make your credit score lower instead of higher. If creditors keep bothering you about your business debts, contact a Philadelphia debt collection abuse lawyer.
What Does Your Choice of Business Structure Have to Do With Bankruptcy Filings?
Filing for business bankruptcy might have different consequences for you than it had for someone else you know who filed for bankruptcy for a debt-burdened business. A major factor in a business owner’s liability or lack thereof for business debts after a bankruptcy filing is the business entity type. One of the first steps in establishing a business is choosing an entity type, also known as a business structure, which you do no later than when you apply for an employer identification number (EIN) for the business you are about to establish. These are the most common business entity types and how bankruptcy laws pertain to them and their owners:
- Sole proprietorship – There is virtually no separation between the business and its owner. Therefore, the only way for your sole proprietorship to file for bankruptcy is if you personally file for chapter 7 or chapter 13 bankruptcy. This will affect your credit score the same way as it would if you were filing for bankruptcy for reasons unrelated to business debts.
- Partnership – When a partnership files for bankruptcy, some or all of its debt obligations become the responsibility of the partners. Therefore, if you have chosen a partnership business structure, and there is any way for your business to settle its debts without filing for bankruptcy, you should choose this other option.
- Corporation, limited liability company (LLC), and limited partnership – The partners in these business entity types do not become liable for the company’s debts after a business bankruptcy filing, except for its tax debts, since the bankruptcy court does not discharge tax debts. If the partners have signed personal guarantees for a business debt, they will become personally responsible for this debt in the event of a business bankruptcy filing.
Contact Louis S. Schwartz About Business Debts
A Philadelphia consumer law attorney can help you rebuild your finances and credit score after a business venture that did not go as planned. Contact Louis S. Schwartz at CONSUMERLAWPA.com to set up a free, confidential consultation.