I Own a Business: Do I Have Personal Financial Liability?

Question: I need to know if bankruptcy can help me. My business in Johns Creek got shut down by the state. They said I didn't have certain safety equipment. For the business I got a bunch of loans and I used my business credit card. I have about $125,000 in debt when it's all added up. I incorporated the business here in Georgia. I had my Johns Creek office and an Alpharetta office. I even had five employees.

Since I did all that stuff like you're supposed to, can the creditors come after me personally? I got served with a lawsuit the other day and they want money form me. What can be done? If you incorporate a business doesn't that mean that legally you can't be held liable personally?

Answer: It is very common for credit card issuers and finance companies to require that an individual obligates himself or herself personally for debt that is incurred in furtherance of a business. Banks and others believe that small businesses are significant credit risks and that having a personal guarantor helps minimize the bank's exposure in the event of non-payment. Banks have extended credit to small businesses and later those businesses have become insolvent, leaving the financial institution with no recourse to collect upon the debt. In fact, it would be a rare small business owner who is not required to personally guarantee debt.

The good news is that you can file personal bankruptcy, a chapter 7, chapter 13 or perhaps a chapter 11 to discharge the debt. Many small business owners utilize the right to file bankruptcy. Oftentimes a business owner does not have to file a business bankruptcy, but merely a personal bankruptcy.

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At the Sherman Law Group we try to answer as many bankruptcy questions as possible on our blog. If you have a question, email it to us (the more facts the better) and we'll do our best to answer it. No names will be used.

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