Most small business owners are required to sign personal guarantees for credit from their bank, their landlord, and other creditors. A business bankruptcy will not eliminate these personal guarantees, and in fact, will probably cause the creditors to come after the individual owner. In addition, there are some debts which owners are personally liable for, such as payroll and certain taxes, and a business bankruptcy will not alleviate those debts either. Generally, insolvency counsel for a small business should consider the impact of an insolvency proceeding on the business owner. Because each small business will have its own particular circumstances, it is important to consult with a reliable attorney to determine what options might be available before filing a bankruptcy.
Your business bankruptcy case can impact your personal assets, and will likely impact you in some meaningful ways; but a substantial impact is not a forgone conclusion. Only careful review and consultation with our business and bankruptcy attorney, and accountant will enable you to measure and weigh how significant the impact may be on your personal assets and liabilities.
The scope of the impact can depend on the method you your capitalization and funding of the business entity, how inter-related your finances are (Eg. personal guaranty of bank debt, or a mortgage to secure loans to the business), and whether your business operations have created some surprise direct liability for you as the owner, president, financially responsible officer etc.
The prospects for success of the business bankruptcy can depend upon the type of business entity, and in particular whether you and the business are treated as a single entity (a sole proprietorship). If you have a truly distinct and separate business entity like a corporation or LLC, seeking bankruptcy relief for that separate entity will not in of itself mean your creditors will obtain any additional rights against you or negatively impact you personally.
In fact, in some cases the automatic stay provisions of the federal bankruptcy code may extend to debt collection cases, foreclosures or proceedings against you if the proceeding against you makes it impossible for the business entity to successfully reorganize. This also raises the next question, what type of business bankruptcy case and protection are you contemplating. Only a Chapter 11 would give your business the chance to reorganize and continue operating. A Chapter 7 would mean the business closes and is liquidated. This is less likely as a first step since its often of little value for a business entity to use a chapter 7 to liquidate and handle claims.
At least two other circumstances can cause your personal assets to be impacted by a business financial failure or stress. For one, you can establish personal liability for your company's business debts by consent. This is normally done through guaranty agreements, or surety agreements, but the same consensual contract legal affect can be obtained in a variety of ways. The structure of particular transactions with your creditors may cause personal liability for you. Hence, if you borrowed the cash, then infused it into your business, then you remain exposed to the legal burden of repayment even if the business fails. There can also be disagreement concerning confusion as to who the creditor dealt with: You or a separate LLC using a identical trade name.
The second category involves those burdens imposed on you because of your relationship, management, ownership or control of the business entity. In such circumstances, the legal separateness of the LLC or corporation is collapsed by law. Such is the case with FUTA and FICA (payroll) taxes owed by the company. This can also occur in some states where the company has uninsured or unfunded worker's compensation liability, where the management may become personally liable for failure to cause the company to acquire mandatory insurance.
In rarer circumstances, certain creditors may be able to show that the company and its owners were operated in such a commingled and fraudulent fashion that the separateness of the two should be collapsed (or "piercing the corporate veil").
Hence, the answer to this question depends on a complex and careful analysis of many relevant facts. You should seek professional advice to better understand your options.
State Required Legal Ethics Disclosure: This Answer and any information contained in this answer is not intended to be treated as legal advice; And, this posting does not create an attorney-client relationship or privilege of any kind. This attorney licensed only in Georgia.
Is your company actually incorporated or an LLC? That makes a huge difference as to whether it will impact you and your personal assets directly. If you are a sole proprietor, or a partner, it will definitely impact you and your personal assets. You do not give enough information to give a better answer.
Sole proprietorship LLC (limited liability company) Business contracts Business debt Business bankruptcy Chapter 11 bankruptcy for businesses Business insurance Trade names Bankruptcy Automatic stays in bankruptcy Chapter 11 bankruptcy Credit Debt Bankruptcy and debt Business Workers' compensation Employee wages and payroll taxes Professional ethics