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Bankruptcy
Can bankruptcy affect my personal assets and my husband?

Can bankruptcy affect my personal assets and my husband?

Full question:

I have a very small internet business. I have made no money; however, I have 3 credit cards that I can't pay anymore. My business is an LLC. If I file for bankruptcy, can they get my personal items such as a car, house, and etc.? Will it affect my husband? Everything is in my name. The credit cards are in the business name. Total debt is around $30,000.

Category: Bankruptcy
Date: 04/07/2025
State: Maryland

Answer:

When you file for bankruptcy, you must complete various forms, including Schedule C, where you list property you claim as exempt. Exemptions vary by state; in Maryland, you must use the state’s exemptions. These exemptions can protect certain property from creditors. For example, Maryland allows exemptions for:

Wearing apparel, tools, and appliances up to $5,000 in value.
Household furnishings and goods up to $1,000 in value.
Cash or property equivalent to $6,000, if elected within 30 days of attachment.

If your business files for bankruptcy, the court will determine if it can disregard the LLC's separate identity and allow creditors to seize personal assets. This often depends on whether you have commingled personal and business funds or used corporate assets for personal purposes. Factors courts consider include:

Failure to hold meetings.
Commingling corporate and personal funds.
Using corporate accounts for personal loans.

Regarding your husband, generally, if the debts are solely yours, his separate assets may not be affected. However, jointly owned property could be subject to sale to satisfy your debts. It's advisable to consult a local attorney who can review your specific situation and documents.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What happens to your debt when a company goes out of business?

When a company goes out of business, its debts typically remain the responsibility of the business entity, not the owners, especially if it's structured as an LLC. However, if the owners have personally guaranteed any debts, they may be held liable. Additionally, if the business is unable to pay its debts, creditors may pursue legal action against the company, potentially leading to bankruptcy proceedings. In such cases, assets of the business may be liquidated to satisfy outstanding debts.

Am I personally liable for LLC credit card debt?

Generally, as an owner of an LLC, you are not personally liable for the business's debts, including credit card debt, unless you have personally guaranteed the debt. If the LLC is properly maintained as a separate entity and you have not commingled personal and business finances, your personal assets should be protected. However, if the LLC is found to be a mere alter ego of its owners, personal liability may arise.

Are owners personally liable for corporate debts?

In most cases, owners of a corporation are not personally liable for corporate debts due to the corporate structure providing limited liability protection. This means that creditors can only pursue the corporation's assets, not the personal assets of the owners. However, personal liability can occur if owners personally guarantee loans or if there is evidence of fraud or improper conduct, such as commingling personal and corporate funds.

Who is responsible for debt if a corporation goes out of business?

If a corporation goes out of business, the corporation itself is responsible for its debts. Creditors can pursue the company's assets to satisfy outstanding obligations. Shareholders typically are not personally liable for corporate debts unless they have personally guaranteed them or engaged in wrongful conduct. In bankruptcy, the corporation's assets may be liquidated to pay creditors.

What happens to my business if I file personal bankruptcy?

If you file for personal bankruptcy, it can affect your business, especially if you are the sole owner and have commingled personal and business assets. The bankruptcy court may consider the business's assets in the personal bankruptcy proceedings. If your business is an LLC and remains separate from your personal finances, it may continue operating, but any debts personally guaranteed could still be addressed in the bankruptcy.

What happens if an LLC can't pay its debts?

If an LLC cannot pay its debts, it may face legal action from creditors, which could lead to bankruptcy. In bankruptcy, the LLC's assets may be liquidated to pay creditors. However, the owners typically are not personally liable for the LLC's debts unless they have personally guaranteed them or failed to maintain the LLC's separate legal status, such as by commingling funds.