A thought may often come across your mind when you run at a loss or face a debt while in business. How personally are you responsible for the business debt? You may worry about the creditor coming after you, your personal property, bank account, house and other assets. To get to the base of it, you must first understand whether or not or how much you are responsible for your business debt. There is a difference between business debts which your business is liable for to pay and others for which you are legally responsible to pay off from your personal assets.
Personal Liable Debts
First you have to understand the debts for which you are responsible personally and can be held liable to pay off from your personal assets. It is generally believed that most of the business which has employees has personal liability. This is the case specifically when the business has not paid the taxes which it has withheld from the pay checks of the employees. It does not matter whether the business is corporation, sole proprietorship, partnership or LLC. Your personal liability also depends on the kind of purchase order contracts you signed, the business structure and several other factors.
Proprietorship Or Partnership
If you are an independent contractor or sole proprietor, then you as well as your business have the same identity and will be treated as same. In this case, you have all the liability and have to pay every penny your business owes. Your creditors can run after your personal assets if you do not have enough cash to pay off your debt. Still you do not have to thinks that all hells have fallen as they cannot take those assets which are summarily exempted by the laws of the state. In case of partnership, it is also the same with a twist that during this time the pro-rata share of profit will not be considered.
Corporation Or LLC
In this case you and your business have bot separate entities and you are safe, to some extent. Still you can be held responsible if you have signed any personal guarantee for a loan, contract or any other lease. Also, if you give up your personal property as collateral for your loan to a bank of financial organization, you can be held liable in dire times. Apart from these if you utilize your credit card or avail personal loans to fund your business, creditors will hold you responsible for non-payment and not your business.
The Way Out
Just like too much debt can be dealt with properly planned loan consolidation, you can also get respite from such situations if you know the way out. You can start with consultation for settling on an amount which is less than the amount you owe. Lastly, if you find no alternatives, then you can liquidate your business or apply for chapter 7 bankruptcy to wipe of the personal liability of your business debt. So, business debt can lead to personal liability and cause a problem in later stages provided you do not tread cautiously in your business venture.