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Am I Personally Liable for the Debts of My Business and Can Business Bankruptcy Help?

debt.jpgMany business owners whose businesses have gotten into financial trouble wonder if they can be held personally liable for the debts incurred by their business. In addition, they are often concerned that filing for a business bankruptcy will affect their personal finances. Whether a business owner will be held liable or affected by a business bankruptcy depends on a number of factors, some of which are discussed below.

Personal Liability for Business Debts

Whether a business owner is personally liable for the debts incurred by his or her business is largely determined by the type of business entity at issue. For example, in a sole proprietorship or a partnership, the sole proprietor or partners generally have no personal liability protection from business debts. On the other hand, owners of LLCs and corporations are shielded from liability, unless an argument can be made for piercing the corporate veil.

When Does Business Bankruptcy Affect an Owner Personally?

In cases where a business owner is liable for his or her business debts, a business bankruptcy can have a direct impact on his or her finances. In the case of a sole proprietorship no distinction is made between the business and the business owner, so any bankruptcy filed will actually be filed by the sole proprietor himself or herself. In the case of a partnership, the business is treated as a distinct entity, so the partnership itself would be able to file for bankruptcy and liquidate its assets. Importantly, however, as a partnership cannot receive a discharge, the partners would likely be liable for any debts not covered by the liquidation.

For businesses that do provide their owners with personal liability protections, the business itself can file for bankruptcy and, in many cases, continue in operation. The types of bankruptcies that are often utilized by businesses include Chapter 7, in which all of a business's assets are liquidated and the business ceases to operate, and chapter 11, which involves a reorganization of a business's debts and generally allows the business to continue to operate. The appropriate type of bankruptcy in your case depends on a variety of factors, including your business's financial situation and your long-term goals.

Contact a San Jose Business Bankruptcy Attorney Today to Discuss Your Case

If you your business is in financial trouble, you should discuss your options with one of the experienced San Jose business bankruptcy attorneys of Diemer, Whitman & Cardosi, LLP. Our attorneys have over 25 years of courtroom experience and work tirelessly to ensure that each client we take has his or her legal issues and questions resolved as favorably as possible. To schedule a consultation with one of our lawyers, call our office today at 408-971-6270.




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  • Santa Clara County Bar Association | 1917
  • American Inns of Court
  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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