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Operating a small business can be both a rewarding and challenging experience. There are any number of factors that go into both creating and sustaining a small business, not least of which is ensuring that the business is adequately funded. Because of this imperative, many small business owners take out loans to ensure that their business has a sufficient amount of operating capital, both when starting up, and when engaged in their ordinary course of their operations. This leads to the necessary question; am I personally responsible for these debts?
The answer to this question will depend upon a number of different factors, including the corporate operating format that the business has been organized under. Herein, we will review how small business owners who operate under one of these formats, Limited Liability Corporations, may or may not bear liability for the debts of their business. Limited Liability Corporations, otherwise known as LLC’s, are perhaps the most commonly found form of corporation that currently exist in America.
They are popular for a number of reasons, including ease of incorporation, taxation benefits, and as the name implies, limited liability for the business owner. This limitation on liability is broad, and includes, among other things, a limitation on liability for any debts that may be owed by the business. This means that debts owed by the business are considered to be distinctly and separately their own, and are not automatically imputed to you. Thus, responsibility for making payments on these debts falls on the business, rather than the business owner.
There are exceptions to this however, the primary one being that any debts which are cosigned or guaranteed by the business owner will be treated in the same way that any other cosigned debt would. Thus, if you have cosigned or guaranteed the debts of your LLC, you would be considered jointly responsible for making payments on these debts. In certain situations, some lenders will require personal guarantees on loans being made to a business, including most loans provided through the SBA.
The question now turns to what responsibility would fall on a business owner who has guaranteed debts on behalf of their business if that business then later becomes unable to make payment on them. The answer is that generally, the business owner would be fully responsible for making payment themselves. This then leads to the question, can liability on these personal guarantees be discharged through a personal bankruptcy? The answer to this question is typically yes!
Personal guarantees on business loans are eligible for discharge in much the same way that liability on a debt that has been so-signed is eligible for discharge. It is critical to note here that discharging the guarantee on the debt does not mean that the business will also have their liability discharged. When you receive the discharge in your personal bankruptcy, the business will still be attached to the loan in the same way that it would have been prior to your bankruptcy being filed.
CALL NOW FOR A FREE STRATEGY SESSION FROM AN MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM
Small business enterprise can be a financially and emotionally regrading pursuit. Many of the nation’s finest corporations are small, local businesses that serve the community where they are based. However, circumstances can sometimes arise that might render continued operations for such a business untenable. If you find yourself in such a circumstance and wish to explore the possibility of discharging any personal guarantees that might still be tying you to the liabilities of the business, please do not hesitate to give us a call! Our experienced and dedicated staff are here to help, and we would love the chance to advise on how bankruptcy can be tailored for your individual circumstances. So, when the time is right, or when you are ready, please don’t hesitate to reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to www.lifebacklaw.com.
