For a business owner, bankruptcy can cause uncertainty about the future. This anxiety is made worse by questions about your financial and personal assets. One concern is whether your personal credit score could be affected by your business filing bankruptcy. It might in some cases. These are some instances in which your credit score may be affected.
If Your Finances and Those of Your Business Are Interrelated
To protect their owners, many businesses are formed as limited liability corporations (LLCs). Your credit score could be affected if the LLC finances and your personal finances are linked.
Be aware that the state may have other guidelines regarding the mixing of assets in an LLC business with an individual. It’s better to keep your assets separate in order to avoid your LLC bankruptcy potentially affecting your personal credit score.
You Used Your Personal Credit Card to Pay Business Expenses
You could also have problems if you use your personal credit card to pay for expenses related to your business. While it might seem tempting to use your credit card for the initial stages of a business, this can lead to problems if you end up in bankruptcy.
If a business owner is in personal credit card debt due to using their credit cards for business expenses, they are personally responsible for the debt. In this scenario, bankruptcy could affect your personal credit.
You Personally Guaranteed Business Debts
If you provide personal guarantees to back business debts, you are personally responsible for the debt. In the event of business bankruptcy, the debt must still be paid. Your unpaid debt will be reported to credit bureaus, causing problems with your credit score.
You May Also Be Affected By Other Factors That Could Affect Your Credit Score
Your credit score can also be affected by how you set up your company. One example of a type of business for which an individual can be held responsible is a sole proprietorship or general partnership.
These types of business formations consider the business owner and the business the same entity. If the sole proprietor or partner files for bankruptcy, it will have a negative effect on their credit score for many years.
This post was written by Trey Wright, the best Jacksonville FL bankruptcy lawyer! Trey is one of the founding partners of Bruner Wright, P.A. bankruptcy lawyers conway ar at Law, specializing in bankruptcy law, estate planning, and business litigation.
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