Business debt can significantly harm your company's future. Business owners struggling to get out of debt have a few different options, depending on the structure of their business and the amount of debt.
The most important thing to do if you are worried about your business debt is to work with an experienced attorney to explore all of your options. You should not make any decisions about paying off debt, responding to creditors or filing for bankruptcy without consulting with your lawyer.
What business owners should know about debt
As a sole proprietor, you are personally responsible for your business debts. It is important to work closely with your attorney to protect your personal assets from creditors if at all possible. Your lawyer can help you determine what strategy to take to protect yourself and your business.
If your business is a general partnership, all partners can be held personally responsible for business debts. This poses a serious risk to you and your business partners. Again, this is why you need to work with your attorney to explore all options to protect yourself from creditors while determining the next steps for your business.
Limited liability companies (LLCs) and corporations are better protected against personal responsibility for business debt. However, there are still issues that can arise that may put you at risk for being personally liable for debt. One example is if you were required to make a personal guarantee to obtain a business loan from the bank.
When is bankruptcy an option?
Filing for bankruptcy is a big decision, especially when your business and personal assets are involved. The benefit of bankruptcy is that once you file, all debt collection is put on hold through an automatic stay.
Bankruptcy may be the right choice for your company if you are struggling to pay off your business debt, and creditors continue to put your business in jeopardy. Several factors should be considered before making any decisions. Your attorney can provide details about eligibility requirements and help you determine if filing for bankruptcy is right for you.
Your attorney can go into more details about the advantages and disadvantages of filing for bankruptcy so you can make an informed decision that will protect yourself and your business. Experienced legal counsel is necessary when so much is at stake. Our attorneys at Rich Michaelson Magaliff, LLP, has decades of experience counseling business owners in New York City in debt-related issues.