Does Business Bankruptcy Affect Personal Credit?

Does Business Bankruptcy Affect Personal Credit?

Are you a small business owner grappling with a crushing debt load and struggling to keep up with your credit payments? The thought of filing for bankruptcy can be daunting, often due to the fear of losing personal assets and damaging your credit score. J. Bottom & Associates Ltd. helps customers in British Columbia understand if business bankruptcy affects personal credit. Bankruptcy can give you freedom from debt collectors and a fresh start. We’ll explain how business bankruptcy can affect your personal assets and your credit.

How Business Bankruptcy Affects Personal Finances

Filing for bankruptcy issues an automatic stay that immediately halts any action your creditors might take against you, such as home foreclosure. The nature of your debt determines your bankruptcy filing format. Bankruptcy can wipe off most unsecured debts like credit card expenses. If your business is dependent on a credit line, bankruptcy can provide relief. If you’re a sole proprietor and personally liable for the business debt, then it will inevitably impact your individual credit score. A Chapter 7 or Chapter 13 bankruptcy filing may affect your credit report for up to a decade.

Bankruptcy for Business Debt Options

Filing for business bankruptcy doesn’t necessarily mean the end of your business. Our team can help create a corporate proposal with creditors as an agreement to help prevent you from filing for bankruptcy. The options to file for business bankruptcy include:

• Chapter 7 – Chapter 7 is a liquidation bankruptcy. A bankruptcy trustee is appointed to sell your non-exempt assets and use the proceeds to repay your creditors. As an incorporated entity, all assets are liquidated, and the business is closed.
• Chapter 11 – Chapter 11 involves business reconfiguration, often used by larger corporations but also available to smaller businesses. The bankruptcy court must approve your reorganization plan, which typically involves revised ongoing payment terms and asset sales to repay some debt.
• Chapter 13 – Chapter 13 is ideal for sole proprietors reluctant to liquidate all assets. The length of the debt payback period depends on your monthly income.

How Business Bankruptcy Can Affect Personal Credit

There are circumstances where the obligation to settle a commercial loan could impact your personal credit rating. Two common instances include voluntarily accepting the responsibility and when legal statutes impose it. In either of these scenarios, failing to pay the business’s debt after its bankruptcy could result in a report to the credit bureau, affecting your personal credit.

Many creditors often necessitate the executives or owners of a small enterprise to endorse a personal guarantee before providing credit for the business. When you sign off on this, you’re taking on the liability for the outstanding business debt. If the company goes bankrupt, you’re held to account for the outstanding dues, which, if not settled, can leave a negative mark on your credit history. Many proprietors declare personal bankruptcy following a business failure to eliminate the personal guarantee.

Another circumstance involves certain business taxes. Some unfulfilled tax obligations may fall on you. For instance, taxes deducted from employees’ wages or collected from others, such as sales tax, usually known as trust fund tax, tend to withstand bankruptcy. Even though the business has the role of forwarding these taxes to the government, the funds used originate from the employee or customer. You are personally liable if you collect but don’t disburse these taxes to the tax agency. This kind of debt will affect your credit rating, especially if a tax lien is filed and appears in public records.

What Happens When You File for Personal Bankruptcy?

While it may seem daunting, personal bankruptcy provides a structured way to address your financial challenges and work toward a fresh start. When you file for personal bankruptcy, certain debts may be partially or fully forgiven, or a repayment plan could be arranged based on your financial situation. Our team can help determine if personal bankruptcy is the best option for your needs, including considering debt consolidation or consumer proposals.

Contact Us to Explore Business Bankruptcy

Ready to tackle your student loans and work toward becoming debt-free? Our team offers bankruptcy services in New Westminster, Port Coquitlam, and North Vancouver, BC. Contemplating business bankruptcy is a significant and intricate task. It necessitates a thorough analysis of your company’s finances, including your debts, assets, and income. J. Bottom & Associates Ltd., a Licensed Insolvency Trustee, is ready to support you in evaluating how business bankruptcy can affect your personal assets and credit. Message us today to schedule a consultation.