If you need to file for bankruptcy for your business, the goal may be to discharge your debts and keep the business afloat. In some circumstances, you may file for bankruptcy while dissolving or closing the business to resolve its outstanding debts.
As the owner or primary shareholder of a business with a lot of debt, you may worry about how creditors will respond to your filing. Is it possible for them to take action against you individually because of your business’s financial issues?
The structure of your business affects creditor claims
Depending on how you started and held your business, creditors could potentially bring claims against your personal property for your unpaid debts. For example, if the business is a sole proprietorship and you frequently commingled your business assets with your personal accounts, your assets may be at risk.
Even if you took the step of protecting your personal property by forming a limited liability company (LLC), creditors could still ask the courts to “pierce the corporate veil” if there is evidence of financial fraud prior to the bankruptcy filing. Misleading creditors, intentionally taking on debt you can’t repay and even selling assets before filing for bankruptcy might all lead to claims of fraud or illegal behavior by creditors.
Protect your assets during a business bankruptcy
Creditors can be ruthless when pursuing a debt. Protecting your personal assets, as well as the assets that allow your business to stay operational, may need to be a major priority for you when using bankruptcy to address overwhelming business debts. Legal assistance with your filing and other major business and financial decisions before and during your bankruptcy can help you avoid mistakes that might leave your personal assets vulnerable.