Does Filing a Business Bankruptcy Hurt My Credit Score?
When times get difficult for a business, it seems as if closing the doors and shutting down the business should be simple. But when the business has credit cards with balances and vendors that are owed money, it can get confusing for those who are considering filing for a business bankruptcy. It’s hard not to pause and wonder what effect it’s going to have on their personal credit score/s.
In many cases, small business owners actually are personally liable for debt generated during the course of their small business dealings. Being personally liable for a business debt means that while the account was in the name of the business and the charges incurred were for business operations, you used your personal Social Security number when setting up the account. Doing so leaves your personal credit and assets up for grabs when the debt goes unpaid.
In many cases, debts with vendors were not personally guaranteed. If that’s the case, you don’t have to pay back companies after closing your business. If possible, you should contact each vendor and return any inventory in an effort to do what you can to repair the damage of closing your doors to other small businesses.
Credit cards are more often deemed as a personal liability. To determine if you are personally liable for a credit card debt call the company and attempt to look up the account information using your social security number. If you can’t look up the account using your social security number, you are most likely not personally liable. If you have a copy of the credit card agreement, you should be able to find a clause in the agreement stating that you personally guarantee the outstanding balance I the event that the account ends up in default.
If you verify that you are not personally liable for any vendor, credit card or other business debt, you can walk away from your business. In cases where the business is the only liable entity, there’s usually no reason to file for a business bankruptcy. It doesn’t “discharge” debt as bankruptcy does for personal debt. In the case of businesses, a bankruptcy serves as more of a “funeral” letting creditors know that the business is insolvent and that they won’t be receiving payment.
Regardless of whether or not you decide filing a business bankruptcy is necessary, you should officially close the business. Verify the correct procedure depending upon your state and the type of business structure you are dealing with: sole proprietorship, corporation, limited liability company, partnership, etc. If you fail to shut down your business as your state required, you could incur fees associated with your business even after you cease operations.
For assistance in determining whether or not filing for bankruptcy is necessary, please get in touch with the southern California bankruptcy attorneys at Westgate Law.