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Small Business Debt Effect on My Credit Score - The Bills.com Blog
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Small Business Debt Effect on My Credit Score
Thursday, Jul 30, 2009
Question: I have a small business, and unfortunately I have encountered debts that were sent to a collection agency. Can they go after my business and myself personally? I have explained my hardship with this economy, and would like to set up a payment plan to pay them off. Will my credit still be affected by this? And, if so, what is the upside on paying this debt?
Answer: My answer assumes your business was organized as a sole proprietorship. I reach this conclusion because your question does not mention any business partners, which would imply your business was organized as a partnership. If you had organized your business as a corporation the attorney who set up the corporation would have explained that corporate officers and stockholders enjoy limited liability when a corporation is organized and financed properly. There are also variations on partnerships and corporations that combine the characteristics of both, but those are irrelevant for the purposes of this question.In a sole proprietorship, all profits, loss, equity,
and liability are assumed by the proprietor. When the business makes money, it's the proprietor's. When the business loses money, it comes from the proprietor's pocket. When the business takes on a debt, it may be in the name of the business, but ultimately the debt is the proprietor's liability.
In other words, if my limited powers of deduction are accurate, then the news for you is all bad. Yes, the creditors can sue you personally if the debt in your business' name goes unpaid, and if they do so they will be successful.
The credit report question is less clear and depends how the debt is recorded on the creditor's books. If the debt is in your
In other words, if my limited powers of deduction are accurate, then the news for you is all bad. Yes, the creditors can sue you personally if the debt in your business' name goes unpaid, and if they do so they will be successful.
The credit report question is less clear and depends how the debt is recorded on the creditor's books. If the debt is in your
business' name, and the debt goes unpaid, initially this will have no impact on you personally. Notice I used the word "initially." In time, as the creditors discover you are the proprietor and are responsible for the debt, then you can expect to see your credit score degrade. However, if the business debt is in your name and it goes unpaid, then your credit score will suffer immediately.
The up- and down-side to paying and not paying your business' debt should be clear from the above analysis.
To learn more about your credit score, see the Bills.com credit score and information page .
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
The up- and down-side to paying and not paying your business' debt should be clear from the above analysis.
To learn more about your credit score, see the Bills.com credit score and information page .
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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