Business Bankruptcy: Will I be personally liable for these debts?

A business is treated like a completely separate person with its own assets and its own debts. There is no automatic overlap between the stuff that a business owns or owes and the stuff that a person owns or owes. Even if you own 100% of the business, you do not automatically own the stuff that the business owns and you do not automatically owe the debts that the business owes. If your business files for bankruptcy, its assets and its debts are gone and they don’t find their way back to you. However, there are some situations where this veil of separation can be pierced.

The first and most common way that you could be on the hook for a business’s debts would be if you agreed to be. Just like you could do for a person, you can co-sign or personally guarantee a loan for your business. All co-signors to a loan are liable for that loan. If one co-signor files for bankruptcy they no longer owe the debt, but the other co-signors still do. Because starting a business is so risky, it is very, very common for creditors to require the owner of the business to co-sign the debt with the business. You will want to read the terms of the contract that was signed to know for sure.

The other way that you could be on the hook would be if there was a lot of mixing of your stuff with the business’s stuff. Using your personal bank account as the business’s bank account, having the business give you its stuff, or having the business take on debt to pay your bills are all common examples of situations where a litigious creditor could find a way to go after your stuff to satisfy the business’s debts.

Navigating these situations can be difficult to do without past experience dealing with debt and creditors. Often times a person ends up filing a personal bankruptcy alongside their business’s bankruptcy. To help figure out the best path, we recommend consulting with an experienced bankruptcy attorney.