Business Bankruptcy And Your Personal Credit Score
The application for an employer identification number (EIN) is only one page long, but filling it out is an exhilarating moment. It is the official beginning of a new business venture. One of the few questions on the form asks you to choose a business entity type for your new business; a business entity type is also known as a business structure. Several factors influence your choice of business structure, such as whether you are opening the business alone or with partners. Each business structure comes with its own paperwork filing requirements and rules for determining tax obligations. Like individuals, businesses have the right to file for bankruptcy protection. When you choose a business structure for your new project, bankruptcy is probably the farthest thing from your mind, but when a business files for bankruptcy, its entity type is of the utmost importance. If you are thinking of filing for business bankruptcy, or if you are struggling with debts after a business bankruptcy filing, contact a Jupiter family and small business bankruptcy lawyer.
Your Business Entity Type Determines How a Business Bankruptcy Filing Will Affect Your Personal Creditworthiness
How you should approach business bankruptcy, or whether you should do everything possible to avoid it, depends on the entity type you have chosen for your company. If your business structure is a sole proprietorship, then the only way your business can file for bankruptcy protection is if you personally file for chapter 7 or chapter 13 bankruptcy. This means that the bankruptcy filing will affect your personal credit score, and you will personally be responsible for paying the debts that the bankruptcy filing did not discharge. If the bankruptcy filing is chapter 7, there is even a possibility that the bankruptcy court will liquidate some of your personal assets to settle your debts.
If the business is a partnership, all the partners are responsible for the company’s debts. The bankruptcy filing could cause you and your business partners to be personally liable for your business debts. This can lead to all kinds of conflict and legal disputes. You should consult a lawyer if you are thinking of filing for bankruptcy for a partnership.
Limited liability companies (LLCs), corporations, and limited partnerships offer more liability protection for the partners or LLC members. You will not be responsible for the debts of these kinds of businesses in the event of a bankruptcy filing. The creditors can pursue you for debts incurred by the company, however, if you signed a personal guarantee to be responsible for the debt. Likewise, the business owners can still be responsible for the company’s tax obligations, even if the company files for bankruptcy and dissolves; filing for bankruptcy does not result in the discharge of tax debts.
Work With a Debt Lawyer to Discharge or Settle Your Business Debts
A South Florida debt lawyer can help you make wise choices about filing for bankruptcy protection for a small business. Contact Nowack & Olson, PLLC in Jupiter, Florida to discuss your case.
