You might have taken the appropriate steps to protect your personal assets when you launched your business in Austin, Texas, but lines got blurred as the years went by. Your original limited liability corporate structure created a legal barrier between you and business liabilities, but problems arose that required you to step in with a personal guarantee. Once you do that, interruptions in revenue, unexpected expenses or excessive borrowing could expose you personally to collection actions by creditors. Bankruptcy could relieve the strain, but the entanglement of your personal and business liabilities complicates the situation.
Sources of personal business liabilities
Most business owners experience emergencies when they must get funding to stay viable in a competitive environment. The need to make payroll and ensure continued deliveries from a supplier represent common problems that require immediate funding. When you tried to get a loan, a lender might have insisted that you secure the loan personally. Similarly, a landlord might have wanted you to sign a statement of personal liability before authorizing a lease.
You likely made these decisions believing that you would overcome near-term problems. If things did not work out as planned, however, you remain confronted by too many debts that your business revenue cannot maintain. Once you have become personally intertwined with business liabilities, you may have to look at personal bankruptcy instead of commercial bankruptcy.
Differences between Chapter 7 and Chapter 13
A commercial bankruptcy proceeding cannot shield you from creditors when you have personally guaranteed liabilities. This leaves you with the personal bankruptcy options of Chapter 7 or Chapter 13. Under the terms of Chapter 7, you must liquidate nonexempt personal assets to pay creditors. Afterward, a judge might discharge other personal debts, except payroll taxes. Alternatively, Chapter 13 protects you from asset liquidation but imposes a court-managed repayment plan.
Due to the complexities that arise when debts overwhelm your business, legal guidance may help you understand your position. A bankruptcy filing might provide the time that you need to reorganize debts and return your business to a stable footing.
