If you own a business that is experiencing financial hardship, you may wonder: Could this affect my own personal assets? The answer is yes. However, there are steps that can be taken to avoid this. Keep reading to learn how your business debt could affect your personal debt. Then contact The Law Offices of Paul Y. Lee at 888-748-0025 if you are considering business bankruptcy and need assistance.
The Key is a Properly Operated Corporation
If you have a corporation that is properly formed, the debts of your business are just that – business debts. They do not go into your personal debts. However, being set up in a corporation is not enough. You also need to ensure that business leases, credit cards, etc. are in the name of the business and not in your name. Anything you sign in your name could end up becoming a personal debt.
A Brief Overview of the California Homestead
This is the key to when business and personal distinction make a difference. The only time that it really matters if your debt is personal or business-related is when you are figuring out the Means Test. This is because the Means Test only applies to debts that are primarily consumers. What does this mean? It means that if you have debts that were incurred in taxes, debts, and business, they are not consumer debts – they are business debts.
If you were to apply for personal bankruptcy, you would have to pass the Means Test, which essentially determines whether or not you are able to “qualify” to file for bankruptcy. If most of your debt is non-consumer (i.e. business debt) then you can skip this dreaded test.
Sole Proprietors Have Their Own Risks
By debtor-creditor law, if a business is a proprietorship, there is zero legal distinction between it and the business. The debts you get in your business will be the debts you have a legal responsibility to pay from your own personal assets or business assets. Failing to pay this can have a negative impact on the business and the individual.
Find Out What Your Best Option Is
Does this all sound unnecessarily complicated? That’s because it is – on purpose. The fact of the matter is that this is not a system you are designed to navigate on your own. That is why we are here. We can provide a fair, honest assessment of where you are now and what your best options are for moving forward and getting out of debt as soon as possible while experiencing as few consequences as possible.
We are standing by to provide a free legal consultation. Call The Law Offices of Paul Y. Lee at 888-748-0025 now to request a free legal consultation.