When someone calls me with a small business that is struggling I always need to find out what type of debts they have and how much they owe. Many people will say that the business had taken out some loans and they want to file bankruptcy on those debts, but they don’t necessarily want to file personal bankruptcy. In these cases it is important to find out whether or not the individual personally guaranteed the loans of the business.
In most small business scenarios, the individual probably did personally guarantee the loans, whether they realize it or not. This is especially true of SBA loans, which normally require the individual to personally guarantee the loan. Why is this important? Because if you personally guaranteed the loan, filing a bankruptcy only for the business and not for yourself will not do any good. The holder of the can still come after you personally.
Many people who reach out to me assume that the business took out the loan , but once we dig into it and look at the loan, many times they find out that they in fact did personally guarantee it. People often misunderstand the idea of limited liability for a business, and take it to mean they will not be liable for debts accrued by the business. Unfortunately, this is not the case. A personal obligation survives even if the business does not.
While the idea of only filing bankruptcy on the business, and not personally, feels less problematic for individuals, it may not do any good. If your small business is struggling and you are considering bankruptcy, you may want to go back and look at the original loan documentation. This goes for business lines of credit and credit cards. If you are a small business facing debt issues, feel free to call us at 412-414-9366. We can discuss your situation and see whether or not the business can be saved. If not, we can talk about the best way to shut down operations, account for the debt, and help to move your life forward. One of the purposes of bankruptcy is to encourage small business creation by providing an outlet for the times when the business does not succeed. The process is meant to help, not hurt. Call us with any questions.