Will Filing for Business Bankruptcy Hurt My Personal Credit Score? - Westgate Law

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Will Filing for Business Bankruptcy Hurt My Personal Credit Score?

If you are a small business owner who has decided that it’s time to close your doors permanently due to debt, you may find yourself wondering how filing for business bankruptcy will affect your personal credit. It’s a question that keeps many struggling business owners struggling against insurmountable debt far too long.


In most cases, small business owners are personally liable on some or even all of the debt that is incurred during the operation of their business. For instance, for the credit card you used during day to day operations for your business, the business name is probably listed on the card, but you probably used your own personal social security number to apply for the card. When you apply for the credit using your personal social security number, you are making yourself personally liable, which means that your personal credit and assets are liable for the debt.


If you are a small business owner filing for a small business bankruptcy and simultaneously trying to save your personal credit, there’s an obvious place to start.


Identify which debts/accounts you are personally responsible for. For vendor debts/outstanding balances with which you did not provide a personal guarantee, you are probably not personally liable. It’s a touch spot to be in and some find they can’t leave their trusted vendors hanging financially, but in situations where it can’t be avoided, you aren’t legally required to pay back companies after the close of your business when there’s been no personal guarantee offered. For credit card accounts, you can usually determine personal liability simply by calling the customer service number on the back of the card. When the automated system requests information to look up your account, use your personal social security number. If this pulls up your account successfully, it is highly likely that you are personally liable. You can also pull up the credit card agreement. There should be a clause in the agreement that holds you personally liable regarding any outstanding balances in event of default. When the company does not pay, this would hold you and your personal assets liable and put you in a tough spot.


If, luckily enough, you find that you are not personally liable on your company’s outstanding debt/s, you can simply walk away from the failed business. When there is no personal liability attached to the business, a business bankruptcy typically isn’t even required. The only benefit of filing a business bankruptcy in this type of situation would be to officially let creditors know that the business is insolvent and there’s no chance for repayment.


Whether you decide to declare business bankruptcy or not, you do need to actually close the business. Follow state regulations regarding closing down sole proprietorships, corporations, limited liability companies and partnerships in order to avoid ending up responsible for unwanted fees related to business operations after all operations have ceased.


For questions regarding your filing for bankruptcy while keeping business and personal finances as separate as possible, contact the Southern California bankruptcy attorneys at Westgate Law today.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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