If you own a business facing financial difficulties, you might be concerned about how this could impact your personal assets. The answer is that your personal assets could indeed be at risk. However, there are steps you can take to protect yourself.
Read on to learn how business debt can affect personal finances and how to safeguard your assets. For assistance with business bankruptcy, contact The Law Offices of Paul Y. Lee at 951-755-1000.
The Key is a Properly Operated Corporation
If your business is structured as a corporation and is properly managed, the debts incurred by the business generally remain separate from your personal debts. This separation means your personal assets are protected. However, it’s not enough to simply have a corporation; you must also ensure that business activities, such as leases and credit card accounts, are conducted in the name of the business, not your own. Any financial obligations you personally guarantee or sign for could become your personal debt.
A Brief Overview of the California Homestead
The distinction between business and personal debt is crucial, particularly when considering the Means Test in bankruptcy proceedings. The Means Test determines eligibility for filing for bankruptcy and only applies to debts that are primarily consumer-related. Business debts, including those incurred from taxes and operations, are not considered consumer debts.
If you file for personal bankruptcy, passing the Means Test is essential. However, if the majority of your debt is non-consumer (business debt), you may not need to take the Means Test. This can significantly simplify the bankruptcy process and provide more straightforward relief from your debts.
Sole Proprietors Have Their Own Risks
For sole proprietors, there is no legal distinction between the individual and the business. This means that any business debts are also personal debts. As a sole proprietor, you are personally responsible for all business obligations, and failing to meet these obligations can adversely affect both your business and personal financial health.
Find Out What Your Best Option Is
Navigating the complexities of business and personal debt can be overwhelming, and the system is intentionally complicated. This is why it’s crucial to seek professional legal advice. At The Law Offices of Paul Y. Lee, we can provide a thorough and honest assessment of your financial situation and recommend the best options for moving forward. Our goal is to help you get out of debt as quickly and with as few consequences as possible.
We offer free legal consultations to discuss your unique circumstances and explore potential solutions. Contact The Law Offices of Paul Y. Lee at 951-755-1000 now to schedule your free consultation and take the first step toward financial recovery.
