Should I Declare Business Bankruptcy or Just Try to Pay Off the Remaining Debt Personally?
Starting up a business is a risk. Sometimes business is good, and sometimes it’s slow. Then there are the times when there’s no profit at all. If you’ve been left with a business with debts close to or equal to its assets, you might be having difficulty deciding if bankruptcy is the best option.
It can be difficult to determine the best financial course of action without all the specifics of each case, but there is always the hope that a business bankruptcy can be avoided. It might appear to be the easiest and smoothest method to close the doors of an unsuccessful business, but it is always best to avoid bankruptcy if possible.
Before you file for bankruptcy, consider if there are any moveable assets in your company that could cover the remaining debt. If there is equipment that can be sold, list it online or at a local auction. You might not get book value, but in certain markets and with a little luck, you could make a substantive dent in your overall debt. It is important to remember that used equipment will typically sell for much less in the secondary market (particularly in times of economic distress).
Next you need to consider the legal setup of your company and your company’s debt. Have you personally guaranteed any of the company debt? Hopefully you obtained any loans or credit under your LLC and not under your personal name. If you took out the credit under your LLC, the creditor may only have the right to go after the business. That means that if the business itself ceases to operate, creditors cannot collect on the debt from you personally. Generally speaking, if the lender has your social security number, you’ve personally guaranteed the loan. An easy way to ascertain personal responsibility for a loan is to call in and input your social security number into the automated system. If inputting your social security number finds your account, it is probably associated with you personally.
If you did personally guarantee some or all of your company debt, you should take some time to consider your personal assets before you file for bankruptcy. When filing for bankruptcy, any valuable personal assets could be seized. Once you know what your assets are, how much they are worth and how far they would go towards settling the debt you have personally guaranteed, you can attempt to settle debts with creditors. Settlements (or agreeing to pay lump sums to creditors substantially less than the full amount due) will hurt your credit, but is better than filing for bankruptcy. There are some cases in which creditors will refuse to settle an account.
If you find your other financial options dwindling, contact Westgate Law in order to discuss what southern California bankruptcy law can do for you.