Find Out How Your Personal Finances Will Be Impacted:
In the vast majority of cases, small-business owners are personally liable on some or all of the debt incurred while operating the business. This means that while you may have a credit card in the name of the business, you used your personal Social Security number to set up the account.
This makes your personal credit and assets liable for that debt. There are some cases, however, where the business owner is not personally liable for the debt of the business.
- Vendors: If you did not personally guarantee your debts with the vendors, you would not be personally liable for outstanding vendor balances. You should contact each vendor and return any unsold inventory. While that does not make the vendor whole, it will at least mitigate their losses.
- Credit cards: There are two ways to determine whether you are personally liable:
- Call the credit card company and use your Social Security number to look up your account. If your account comes up with that number, it is more likely than not that you are personally liable for that account.
- Look at the credit card agreement. There will be a clause in the agreement that states you personally guarantee the outstanding balance in the event of default. If the business fails to pay, you and your personal assets become vulnerable.
How do you shut down the business?
When the business is the only liable entity usually the only benefit of filing bankruptcy is to let creditors know the business is insolvent and no one is getting paid. In the event there is pending litigation against the business, however, it may still be advantageous for the business to file bankruptcy in order to terminate that litigation process and save the business owner the cost of litigating claims in civil court.
Whether you decide to file bankruptcy or not, you should consult with legal counsel and check the law in each state in which the company is registered because each state has a process (sometimes referred to as “winding down”) to officially closing down sole proprietorships, corporations, limited liability companies and partnerships.
This will stop you from incurring additional state fees associated with your business.
Filing a business bankruptcy requires careful planning and competent legal counsel in order to prevent the business owner from becoming liable for debts incurred on behalf of the business. If you would like more information, call the Law Office of Howard Tagg to schedule your free consultation. (903) 581-9961