Business Owners: How to Avoid Personal Bankruptcy
When you run into trouble paying your business’s bills, you will likely begin to worry about whether creditors can seize your assets. Can the creditors garnish your wages? Will you be forced to file for personal bankruptcy because you cannot afford your business’s expenses? Most business owners want to avoid personal bankruptcy, if at all possible. If you can avoid personal bankruptcy relies heavily on whether you are liable for your business debts.
Are You a Sole Proprietorship?
If you are a sole proprietorship or if you work with a partner, you are the same legal entity as your business. If you want to avoid filing for bankruptcy, then you do not want to take this route. In this case, if your business does not have the appropriate cash or assets to pay off debts, then you have to do it yourself. Your assets may be seized, unless otherwise protected. In this case, if all else fails, you may have to consider bankruptcy.
Are You a Corporation?
If you want to avoid personal bankruptcy, then you want to make sure that you are a separate legal entity from your business. As an LLC or corporation, you have no personal liability in regard to the debts of your businesses. Now, this doesn’t mean that you cannot have any liability. In fact, it is possible for someone who owns a corporation to become liable for some of the debt.
This happens if you sign a personal guarantee, sign a contract with your name or if you offer your personal property as collateral. Whenever you do any of these three things, you could wind up liable for those costs.
If you want to keep from, being personally liable and risking bankruptcy, then you should never commit fraud or misrepresent yourself. When you do this, you may be personally liable for any debt that you acquired under the LLC due to the fraud you committed.
Are There Other Options?
If you are liable for debts, you may be trying to figure out if there is a way out of bankruptcy. If you can, you can negotiate a settlement for less than you owe and try to pay your debt off in payments. While there are other options, the best way to avoid bankruptcy is to be a corporation.
When it comes to paying your business’s bills, you are not always personally responsible. You should do everything that you can to ensure that you are not liable for business debt. For more information, talk to a bankruptcy lawyer in Melbourne, FL about your options.
Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into bankruptcy law and how to avoid personal bankruptcy as a business owner.