German Yusufov (@yusufovlawfirm)
22 days ago

In this article, we will discuss how business bankruptcy affects someone’s personal finance and credit scores. Stay until the end of the article to know how your credit score will be affected so that you can decide whether you should go for filing a bankruptcy or not.

Financial matters are an essential concern for any business. A businessman has to manage many things, from human resources' salaries to pay sales and taxes. When a business does not give back on a favorable note, chances become high that you have to quit and file a bankruptcy to overcome the debt. People always get worried about how these decisions are going to affect their personal finance and credit scores.
Business bankruptcy affects someone when they are associated with the business directly. It means when you are personally accountable for the business debt your credit score is going to be hurt. It depends on the type of business you are into and whether you are a personal guarantee for the debts incurred by the failed business.
Business types and your credit scores are interconnected. It is always decided whether your credit score will be affected by the claimed business bankruptcy, depending on how responsible you are for your business. If you are one of the responsible parties, then you can expect your credit report to be affected.
Here are the types of business you may have associated with and how it will affect your personal credit:
What happens when you are the sole proprietor?
As a sole proprietor, you are the only one who is answerable for your business debts. In this case, when you file a bankruptcy, it will have acute adverse effects on your credit score. If you are filing Chapter 13 bankruptcy, then it will be there in your personal credit for a period of seven years from the date of filing, and under Chapter 7 and 11, it remains up to 10 years.
What happens when you are into a Partnership business?
If you are into a business with a partnership, then each general partner has to file bankruptcy. It will definitely affect your credit score as if the debts don’t get paid with the company’s assets, you and your partners will be responsible for the unpaid debts.
It is recommended to negotiate with the creditors to get less harmed from the bankruptcy. But never file a bankruptcy on behalf of the entire business and its partners, as it is going to trick you in the worst way.
What happens when you are into Limited partnerships, limited liability companies, and corporations?
When you are a limited partner of a business or hold limited liability, you are not responsible for business debts. If the corporation plans to file a bankruptcy, it will not affect your credit report by any means. Under<a href=""> Chapter 7 and 11, bankruptcy</a> won’t affect your personal credit. But there are some exceptions when your credit score might get hurt!
Personal guarantee
Suppose by any chance you have signed a personal guarantee at the time of investing your money with the business. In that case, it means you agree to be responsible for the payment of business debts whenever needed. When the business goes bankrupt, you are equally responsible for the debt, and if you couldn’t pay it back, then your credit will be hurt.
To conclude
Irrespective of the type of bankruptcy you file, it will leave a destructive impact on your credit score for some time. Debts you are responsible for paying back are the more crucial parts of bankruptcy. When you are the single owner of the business, you are the sole responsible person for any mishap that will happen with the business. But when you are a part of any Limited Liability Company or partnership firm, make sure not to take the burden and responsibility only on you. Keep an eye on the expenses and payments of taxes timely to avoid unpleasant situations like bankruptcy.