When your business is unprofitable, it may be time to look at filing a business bankruptcy. Will a business bankruptcy hurt my credit score is a common question. The answer largely depends on the type of business you own (LLC, Partnership, sole proprietorship, etc.), if you personally guaranteed the loans, and what type of taxes the business owes if any.
Will a business bankruptcy hurt my credit score?
Types of Businesses
If your business sis a sole proprietorship, then you are the business and the business is you. You are personally liable for any debts incurred by the business and in order to get rid of any outstanding debts incurred by the company a personal bankruptcy is in order. Just like any other type of personal bankruptcy, this will cause a decrease in your credit score. You’ll want to weigh the costs of late payments and their effects on your credit compared to what a bankruptcy would do.
Like a sole proprietorship, in a partnership, the partners of the company are liable for any debts that are not paid off during a bankruptcy. In most cases, however, since the business filed bankruptcy and not you as an individual, the majority of the time this will not show up on any of the individual partners’ credit report.
If your business is an LLC or Corporation, the business itself is considered a separate entity from any owners of the company. Therefore, if either type of company files a bankruptcy it will not appear on your credit report or hurt your credit score.
It should be noted that in the case of a LLC or partnership, if any parties personally guaranteed any loans or incurred debt, then they will be responsible for the liabilities even if the company files bankruptcy. Business taxes are also an exception to the rules. If you collected taxes from employees and didn’t relinquish them to the proper authorities, you will be held liable for these debts as well, which could impact your credit.
A bankruptcy attorney in Houston Texas specializing in business bankruptcies has a better aptitude and the experience to help your business navigate bankruptcy. This means that a competent bankruptcy lawyer will help you avoid personal liabilities where possible and ensure that your business can restructure and continue operations while the company reorganizes its debt.