Many business owners worry that if their business goes bankrupt, they will personally lose their homes and other assets. Will a business bankruptcy affect my personal credit? Will I lose personal assets if my business fails?
Here’s what you need to know.
First, do you need to worry about losing your most valuable assets if your business goes under?
It’s all a matter of how your business is set up.
First and foremost, you can protect personal assets by separating them from business assets. This means that the sole proprietor should have both a personal bank account and a business bank account.
You must deposit all business income into the business account and all business expenses should be paid out of this account. This prevents the use of personal assets to pay for business debts in the bankruptcy.
Sole proprietors can also purchase liability insurance. This type of insurance covers the cost of any legal claims made against the business. It is important to note that this insurance will not protect the sole proprietor’s personal assets, but it can help to cover the cost of any damages awarded in a lawsuit.
A better way to protect personal assets is to create a limited liability company (LLC).
An LLC is a business structure that offers its owners limited liability protection. This means that if the LLC is sued or goes bankrupt, the owner’s personal assets will not be at risk. To create an LLC, the sole proprietor will need to file paperwork with the state in which they operate their business.
The greatest protection comes from setting up a corporation or limited liability company (LLC). This is because these business structures are legally separate from their owners.
An LLC, or limited liability company, is a type of business entity that offers its owners limited liability protection. This means that if the LLC is sued or goes bankrupt, the owners’ personal assets are not at risk. Instead, the creditors can only go after the assets of the LLC itself.
A corporation is a separate legal entity from its owners. This means that if the corporation goes bankrupt, the owners’ personal assets are not at risk. The creditors can only go after the assets of the corporation itself.
Both LLCs and corporations offer their owners some protection against personal liability in the event of business bankruptcy. However, there are some important differences between the two entity types. For example, corporations have to follow more stringent rules and regulations than LLCs. Additionally, corporations may be subject to double taxation, while LLCs are not.
When choosing the type of entity for their business, owners should consider their personal liability risk and the level of protection they need from creditors. LLCs and corporations both offer some level of protection, but there are important differences between the two that owners should be aware of.
Personal credit can be affected by business bankruptcy, but the extent to which it is affected depends on a few factors. First, if you have personally guaranteed any of your business’ debt, then that debt will appear on your personal credit report. This can lower your credit score and make it more difficult to obtain new credit in the future.
Second, even if you haven’t personally guaranteed any business debt, the bankruptcy itself will show up on your personal credit report. This can also lower your credit score and make it harder to get new credit.
However, there are some things you can do to minimize the impact of business bankruptcy on your personal credit. Your bankruptcy attorney can help you work with creditors and arrange the best possible scenario as you proceed through bankruptcy.
Of course, there are always exceptions to the rule. If you have personally guaranteed any loans for your business, you may be held liable for those debts. And if you have commingled personal and business funds, your personal assets may be at risk.
If you have concerns about how bankruptcy will affect your personal assets, you should speak with an experienced bankruptcy attorney. They can help you understand the laws in your state and advise you of your best options.
If you’re considering bankruptcy, the calculator below helps estimate whether you may qualify for a Chapter 7.
To learn more, contact the Law Offices of Robert M. Geller at 813-254-5696 to schedule a free consultation.
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