Every year in America, millions of businesses are started, however, unfortunately approximately an equal number also fail. Oftentimes a business failure will also cause significant financial strife in the principal’s personal life. The question then becomes does the owner of a failed business have to file a personal bankruptcy in order to get a fresh start.
The answer depends on two factors: a) how was the business established; and b) how was the debt structured? Specifically, if the business was officially incorporated, and all of the debt was solely in the name of the business (no personal guaranties,) then the closing of the business will not have a negative repercussion on the principal’s credit, and thus no bankruptcy will be necessary.
On the other hand, if the business was a sole proprietorship, (also known as a “d/b/a,”) and/or the debtor guaranteed the business debt personally, then the principal will be pursued for the debt and a bankruptcy may become necessary. In this situation, a successful Chapter 7 will relieve the principal of the failed business debt in order to allow them a fresh start and a chance to start another business if they become so inclined.
by: Justin H. Dion, Esq.
Yes, a trustee could try and go after you personally. It's very important to ensure your "ducks" are in a row before filing.
Posted by: arizona bankruptcy lawyer | June 02, 2009 at 11:18 AM