Your Personal Liability In Business Bankruptcy
As a business owner, unexpected events can arise that impact your cash flow and your ability to make payments to suppliers and other creditors. Rather than allow these problems to jeopardize your business, filing for bankruptcy may be your best option. Business bankruptcy provides important protections but one of the most common questions we hear from clients concerns their personal liability. The following details practices that could put you at risk.
Business Bankruptcy: Reducing Personal Liability Risks
According to a January 2021 Statista report, more than 20,000 businesses file for bankruptcy each year. Filing a business bankruptcy in New York can help protect your investment through difficult times. Among the benefits bankruptcy provides for business owners include: .
- Protection against harassing credit collection calls, which can end up taking a heavy toll on your physical and mental health;
- Protection against legal actions, including property liens and asset seizures;
- Temporary suspension of current debt payments;
- Elimination of certain types of unsecured debts;
- Ability to renegotiate contracts with suppliers and other business associates;
- Provides breathing room, giving you time to reorganize your business and get it back on track.
An additional and equally important benefit of business bankruptcy is that it can help to reduce your personal risks. Many business owners make the decision to withdraw funds from their retirement accounts, take out second mortgages on their home, or use their own credit cards to pay outstanding debts during troubled times. In addition to the major impacts this can have on your personal finances and future well-being, this generally only masks the problems and fails to address the underlying reasons that your business is in trouble.
Can I Be Held Personally Liable For My Business Debts?
Filing a business bankruptcy through the New York Bankruptcy Court can help to prevent you from personally going into debt in an effort to save your business. However, there are still situations in which you can be held liable. For example, if you own a sole proprietorship, your personal finances are likely to be heavily tied into your business. While having your business registered as an LLC or Corporation provides additional personal liability protections in bankruptcy, there are still situations in which creditors can ‘pierce the corporate veil’ and hold you personally liable for business debts. These include:
- If you personally guaranteed business loans;
- If you pledged your personal property as collateral;
- If you sign contracts in your name, rather than the name of your business;
- If you engaged in any type of negligent actions;
- If you failed to maintain the appropriate records;
- If you engaged in any type fraud or misrepresented yourself or your situation in establishing your business.
Let Us Help You Today
At the Law Office of Harry D. Lewis, we provide the trusted legal guidance you need in considering bankruptcy as an option both to protect your business and to prevent you from being held personally liable for outstanding debts. Call or contact our New York City bankruptcy attorney online to request a consultation today.