It is very courageous and ambitious to own a small business. There are many risks involved. Sometimes the risks pay off and sometimes a business owner is forced to close their doors due to financial hardship. It may be difficult to recover the entrepreneurial spirit that you once had if you now are forced to face filing for bankruptcy.
You will need to research and find out what you owe for any leased equipment, point of sale system, or inventory. Some lenders may be able to reduce the outstanding loan balance by taking the property or reselling the equipment. Don’t file any bankruptcy without knowing exactly what the outstanding debt adds up to. It could be much less that originally feared. You also must confirm whether or not you personally guaranteed these loans. Usually people do because most businesses start with very few or no assets at all. Lenders want to ensure the business owner makes a personal contribution as a type of loan security, but that is not always a loan requirement.
A personal guarantee means that the lender has the right to the assets of both the business and that of the business owner personally. Sometimes a client will want to file bankruptcy for his or her business only, but not get involved in a personal bankruptcy. You must confirm if you pledged your personal assets as collateral for the business loan. If this is the case and the business filed bankruptcy, the creditor can come after personal assets like cars, bank accounts and even a home. This is a very common loan requirement through the Small Business Administration (SBA loan). The lender will give money to start the business, but will require the owner to be personally accountable if the business happens to fail. You may need to file a personal bankruptcy to protect yourself if, in fact, you personally guaranteed those loans. Before making that decision, you will need to have all your numbers in order and be sure you are knowledgeable of what the bankruptcy will entail.
You may also be able to resell the property to lower the outstanding liability and debt. Any remaining balance is called a deficiency balance and it will be your responsibility. You might be able to repay that debt directly to the lender rather than filing bankruptcy.
12 It is important to protect your credit and settle these accounts, and maybe even start planning your next business adventure.