Business Debt Advice

What effect, if any, your business debts will have on your personal credit rating will depend on whom you agreed to make liable for the account when you applied for credit.

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In many cases, when small businesses apply for credit, lenders require that the owner(s) of the business personally guarantee any credit which is provided to the business. While corporations and LLCs limit the liability of owners and stockholders (hence the name Limited Liability Company), if a company’s principals offer a personal liability for credit extended to the business, the creditor can pursue the principals for payment if the company defaults on its required payments. It is common for banks to require personal guarantees on their loans, credit lines, and credit cards; however, many business service providers (in your case, Pitney Bowes and Blue Cross) do not demand personal guarantees, so you may not be personally liable for these obligations.

If you provided a personal guarantee on any of your accounts, they should not appear on your credit reports unless the creditors file suit and win a judgment against you personally; any judgment appearing on your credit report will likely result in a reduction of your credit score. In order to determine whether or not the obligations in question are backed by a personal guarantee, you should review your credit agreements with the banks and business service providers to determine whether or not you are personally liable for the debts in question.

Since you state that you are struggling to keep your business operational due to a drop in revenues, you may wish to consider filing for bankruptcy protection for you business. If you personally guaranteed any of the debt, you may also need to consider a personal bankruptcy as well. I know that no one likes the idea of filing for bankruptcy protection, but one reason it was created was to provide a release valve for businesses; few people would take on the huge risks associated with an entrepreneurial venture if failure meant losing all of their personal assets as well as their business. I strongly encourage you to consult with a qualified bankruptcy attorney who can review your situation and tell you whether or not filing for bankruptcy is a viable solution. To learn more about bankruptcy, including the various types available both to businesses and consumers, I invite you to visit the Bills.com bankruptcy page at http://www.bills.com/bankruptcy/.

Filing for bankruptcy protection for your business should not affect your personal credit history or finances. However, if you are forced to file personal bankruptcy as well, your credit rating will likely drop significantly. While the damage to your credit score may cause you problems obtaining credit in the future, it may be unavoidable if your business debts are personally guaranteed and if the creditors attempt to come after your personal assets for payment of the debts. Again, I strongly encourage you to consult with a qualified bankruptcy attorney to determine if filing bankruptcy is really necessary, either for your business or for you personally.

To read more about credit, credit reports, and credit scoring, I encourage you to visit the Bills.com Credit Resources page at http://www.bills.com/credit/

I wish you the best of luck in resolving these debts, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.Bills.com