Could You Be Personally Liable For Debt After Filing A New York Corporate Bankruptcy?

No one wants to risk personal assets in the event of a business failure or wants personal debt problems to disrupt a business. New York corporate bankruptcy laws clearly delineate the debts of the owner from the debts of the business.

New York Corporate Bankruptcy vs. Personal Bankruptcy

If an incorporated business files Chapter 11 bankruptcy in NYC, that decision will usually not affect the personal assets of the owner. Protection of personal assets is exactly the reason many business owners choose to incorporate. However there are cases where an owner may have given a personal guarantee of a loan in which case the owner can be held liable for the corporation’s debts. Consult a bankruptcy attorney in New York for an analysis of your situation.

In the other direction, the law is clearer. A personal bankruptcy on the part of the owner has no effect on the operation or finances of the business per see. However, if a chapter 7 trustee in the personal case decided to administer the business assets, he has a right to sell or liquidate the business to satisfy the personal shareholders.

Personal Debt And Business Debt

It is impossible to separate different kinds of debt in a bankruptcy. Some business owners want bankruptcy for only certain kinds of debt, say seeking protection on business assets but accepting responsibility for business-related but personal assets purchased with the company’s money. New York corporate bankruptcy law does not allow this kind of designation.

This is even more important if the business is a sole proprietorship rather than a corporation. Since there is no delineation between the business entity and personal assets, they all fall under the same umbrella. Business owners can lose their homes or retirement investments to a failed business, which is why all business owners are strongly encouraged to form an LLC or corporation.

LLC And Corporation Protection


Unlike sole proprietorships, forming an LLC or corporation can offer considerable protection of personal assets against New York corporate bankruptcy. If creditors seek to collect business debts, they can relinquish assets only of the business entity, which keeps personal assets separate and protected against claims for Chapter 11 bankruptcy in New York. Additionally, if a LLC is managed and structured properly, not only will each owner’s personal assets be protected, but each owner’s business liability is also limited to the invested amount in the company.

Often referred to as a “company” or “limited company,” a corporation is similar to an LLC in the fact that it offers its owners, or shareholders, protection against personal assets. Creditors of a corporation are unable to hold shareholders responsible for corporate debt, which means that if a corporation is unable to issue full payment to its creditors, then creditors still have no legal right to claim personal payment against shareholders.

Bankruptcy is a difficult time for all parties involved, and corporate bankruptcy is no exception. Regardless of the type of business entity, it is important with facing corporate bankruptcy to work closely with your experienced bankruptcy attorney in New York to discuss all available legal options.