Under the limited liability legal structure, you will not be held responsible for debts that are held in your business's name. These debts only belong to the business itself. However, some creditors will require that you sign a personal guarantee before they offer a loan to your business. If this is the case, you'll be forced to pay these debts unless you choose to file for Chapter 7 bankruptcy.
Personal Guarantees
The purpose of signing a personal guarantee is that your business will have access to loans that they would otherwise not be able to take out. Your business will also be able to receive a loan that has more favorable terms.
Corporate Credit Cards
If you are applying for a corporate credit card, you will be applying both as the corporate entity and also as the individual who is applying for credit on behalf of your corporation. This is another way that you may be held liable for corporate debt. You might also be held liable for debts that create liability under certain statutes. For example, you can be held personally liable for taxes you fail to withhold from an employee's paycheck.
The Liquidation of Your Assets
If you are personally liable for debts related to your business, you have the option to file for Chapter 7 bankruptcy. Then, your assets will be liquidated and any debts you are personally liable for will be discharged.
Exempt Assets
You might be hesitant to file for Chapter 7 because you might be concerned about losing your assets. However, not all of your assets will be liquidated under Chapter 7. A trustee will be assigned to your case and will be responsible for determining which of your assets will be considered exempt. Any exempt assets do not have to be sold to pay your creditors.
Possessions that will be considered exempt from Chapter 7 bankruptcy usually include clothing, the equity in a primary vehicle, and equity in your home if it is significant. If you own more than one vehicle, you will only be allowed to keep one. You will usually not be forced out of your house.
Chapter 7 Might Be Right for You
If you are filing for Chapter 7, this is because you do not have a substantial income. Your business might be failing and you may not have many assets. Therefore, you may have nothing to lose from filing for Chapter 7. But a bankruptcy attorney can help you decide this is the right option for you and will help you with your filing.
Contact a local Chapter 7 bankruptcy attorney to learn more.
Share31 January 2023
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