Filing for bankruptcy in business is different than on a personal basis. The main differences are in the way assets and debts are handled in a business filing. Owners of small businesses may have trouble sorting out their debts and assets if there was any personal tie between these during operations. Further, many filers become concerned about how a business filing will affect their personal credit standing.
Parsing Out The Details
There is no guarantee that a business bankruptcy will not affect personal credit. In order for a business debt to affect personal credit, the debtor would have to be considered personally liable for the business debts. This depends on the type of business in operation and whether any debts were personally guaranteed in business. Generally, anytime a debtor personally guarantees a debt or line of credit they can be held liable for repayment of that debt regardless of the type of bankruptcy they file.
Sole proprietorships do debtors to be personally liable for business debts. By law, owners of a sole proprietorship would have to file personal bankruptcy in order to resolve business debts. General partnerships do file for business bankruptcy, but split debt liability among the business itself and the debtors, personally. This means that any debts that cannot be resolved after business assets are liquidated hold the debtors personally liable for the debt. Corporations and LLCs file business bankruptcy cases and are generally not personally liable for business debts, unless a line of credit was guaranteed by a personal co-signer.