Helping With Your Financial Future

Paying business debts after bankruptcy

On Behalf of | Jun 12, 2023 | Bankruptcy Exemptions

Filing for bankruptcy may be an effective way to reduce or eliminate personal or business debts. Depending on the circumstances of your case, it may be an effective way to reduce or eliminate personal debts that were incurred to run your business. If your company is structured as a corporation or LLC, filing for bankruptcy in California may absolve you of responsibility for your organization’s liabilities.

If you’re a sole proprietor

If you are a sole proprietor, any debts incurred to run your business will likely be in your name. Therefore, filing for protection from creditors won’t necessarily eliminate those balances. However, the state may provide several bankruptcy exemptions that prevent you from losing your house, car or other assets after doing so. The trustee overseeing your case may also decline to seize assets if they aren’t worth enough to liquidate.

If your company is a separate entity

A corporation is an entity separate from its owners. Therefore, if your company files for bankruptcy, creditors can only go after corporate assets during a bankruptcy proceeding. However, an exception may be if you personally guaranteed a loan or line of credit used to operate your business. In such a scenario, the trustee overseeing your case may decide to seize your home, car or other assets in an effort to make your creditors whole.

Starting or acquiring a business comes with a level of risk regardless of how confident you are in your ability to turn a profit. Therefore, it’s possible that the company will fail and that you will need to file for bankruptcy. Although you may still be on the hook for some of the company’s debts, obtaining a discharge may free up sufficient capital to start a new business or otherwise rebuild your life.