What Happens to My Business Debt in Bankruptcy?

TL;DR

Filing for chapter seven bankruptcy eliminates personal liability for business debt, but the business may still be liable for the debt.

Transcript

• Hey everybody, John Skiba here. And in this video, I'm going to share with you what happens if you have a personal guarantee on a business debt, if you filed for chapter seven bankruptcy. Also, if you are from the state of Arizona, wait until the very end because I have a very special statute that I'm going to provide you that can give you a lot ... Read More

Key Insights

• 💼 Personal guarantees are often required by banks when obtaining business credit, protecting their interests in case the business defaults on the debt.
• 😌 Filing for chapter seven bankruptcy eliminates personal liability for business debt, relieving individuals of personal asset risks.
• 👨‍💼 Businesses, unlike individuals, do not receive a discharge in a chapter seven bankruptcy filing.
• 🤘 Arizona law offers potential protection in cases where only one spouse signed a personal guarantee, limiting the assets that creditors can pursue.
• 👨‍💼 Filing a chapter seven bankruptcy for a business is usually unnecessary unless there are assets to distribute.
• 👨‍💼 Owning a business and dealing with personal guarantees on business debt can be stressful, but bankruptcy can provide relief from these obligations.

Questions & Answers

Q: What is a personal guarantee on business debt?

A personal guarantee is a legal agreement that holds an individual personally responsible for the debt of the business. It exposes both personal and business assets to potential liability if the debt is not repaid.

Q: Can filing for chapter seven bankruptcy eliminate personal guarantees on business debt?

Yes, filing for chapter seven bankruptcy eliminates personal liability for the debt. Creditors can no longer pursue the individual for their personal assets.

Q: Do businesses receive a discharge in a chapter seven bankruptcy filing?

No, unlike individuals, businesses do not receive a discharge in a chapter seven bankruptcy filing. Instead, if there are assets to distribute, a bankruptcy trustee may step in to sell those assets and make distributions to creditors.

Q: What protection does Arizona law offer for personal guarantees in a marriage?

Arizona law, specifically A.R.S 25-214, states that both spouses must sign off on a debt for it to be collectible against the marital community. If only one spouse signed a personal guarantee, the creditor cannot collect against the marital community, reducing the assets they can pursue.

Summary & Key Takeaways

• When owning a business and obtaining a line of credit or credit card, a personal guarantee is often required by the bank to ensure payment.

• Filing for chapter seven bankruptcy eliminates personal liability for the debt, protecting personal assets.

• However, the business remains liable for the debt, and filing chapter seven for a business is generally unnecessary unless there are assets to distribute.