The Covid-19 pandemic has significantly impacted the ability of businesses in Pennsylvania to operate as they once did. Unfortunately, once profitable companies are being forced to consider filing for bankruptcy. It is of paramount importance that business owners understand the potential repercussions filing for business bankruptcy could have on their personal assets. If you own or operate a business in Pittsburgh and need assistance with a bankruptcy matter you should contact a trusted Pittsburgh bankruptcy attorney to discuss your rights.
Relief From Creditors Provided by Automatic Stays
When you file for bankruptcy, there is an automatic stay that immediately stops your creditors from foreclosing on your house or other personal property. U.S. Bankruptcy Code Sec. 362. This, at the very least, can buy you some time. Furthermore, the type of debt that you have affects how and whether bankruptcy can help you. Bankruptcy wipes out most unsecured debts (credit cards bills and lawsuit judgments), but for secured debts, especially where you pledged property as collateral for a loan, the creditor is entitled to take the property. For example: You may not have to pay back what you owe on the loan if its more than you house is worth, but you will still lose your home. Another feature of Section 365 of the U.S. Bankruptcy Code, is that the debtor has the right to reject executory contracts because an executory contract requires both the debtor and a counterparty to make further performance.
Personal Liability for Business Debts
If you run a sole proprietorship your business is not recognized as a separate legal entity. In other words, for bankruptcy purposes, you and your business are the same entity. This means you are liable for your business debts, and creditors may come after your personal assets if your business is unable to make payments on debts owed. Filing for bankruptcy could affect your credit report for up to ten years and damage your score by more than 130 points. If you are a partner in a general partnership, the partnership debt belongs to each partner personally with each partner personally liable for 100% of the business debt.
Normally, if your business is organized as a corporation or LLC, then you and the business are separate legal entities and there is no personal liability for debts of your business. The creditors generally only collect on debts by selling off or liquidating the debtor’s assets. However, if you’re a corporate shareholder or an LLC owner who has signed personal guarantees or pledged collateral for business loans, then putting the business through bankruptcy won’t protect your personal property. Owners of corporations or LLCs who put up personal property as collateral are personally liable for the debt if the business defaults on the loan. Further, you could have given up your liability shield if you signed purchase agreements and service contracts in your own name without the name of the corporation or LLC. A mistake like this would make you personally liable for the underlying debt. Other issues that could make you personally liable for your business’s debts would be using credit cards or personal loans to fund the business, fraud, misrepresentations, or sloppy recordkeeping.
It is also crucial to note that having a small business bankruptcy on your record can limit your access to financing in the future. You may be required by prospective lenders to wait a certain amount of time after a completed bankruptcy before they will consider you for a business loan.
Speak with a Capable Pittsburgh Bankruptcy Attorney
If you are struggling to pay your business’s creditors, you may be able to seek relief via bankruptcy and should speak to an attorney. The capable Pittsburgh bankruptcy attorneys of Hardin Thompson PC have the skills and resources needed to help you seek a favorable result and we are eager to assist you with your legal needs. You can contact us at 888-791-0013 to set up a consultation.