When you start a business, personal finances and business finances are supposed to be separate, right? Not always. Approximately 20% of new businesses fail within the first year. One common reason? Debt. And for many Texas entrepreneurs, that debt doesn’t always stay confined to the business itself.

When Business Debts Can Affect Your Personal Credit

While business debts and personal credit should ideally remain separate, there are several scenarios where your personal credit can take a hit:

  • Personal Guarantees:When you sign a personal guarantee for a business loan or line of credit, you’re legally responsible if your business defaults. Lenders can report missed payments directly to your personal credit report, damaging your score.
  • Sole Proprietorships and Partnerships:If your business is structured as a sole proprietorship or general partnership, there’s no legal distinction between personal and business debts. Creditors can come after your personal assets if the business cannot meet its obligations.
  • Credit Cards and Personal Loans:Using personal credit cards or personal loans to fund your business can also impact your personal credit. If your business fails to repay these debts, your credit score will suffer.

How to Protect Your Personal Credit

Understanding the risks is the first step. Here’s how you can protect your personal credit from business debts:

  • Incorporate Your Business:Forming an LLC or corporation separates your personal and business liabilities, offering a layer of protection against creditors.
  • Use Business Credit:Establishing a separate business credit profile ensures that business debts are reported to business credit agencies, not personal ones.
  • Avoid Personal Guarantees:Negotiate with lenders to provide credit without requiring personal guarantees. If unavoidable, understand the terms fully before signing.
  • Consult with Legal Professionals:Seeking guidance from a Chapter 7 or Chapter 13 bankruptcy attorney can help you evaluate your options and protect your personal credit from business-related issues.

What to Do If You’re Facing Debt Collection

If you’ve already been hit with a debt collection lawsuit in Corpus Christi or anywhere else in Texas, you may have options. Bankruptcy could potentially discharge some of these business debts or allow for a manageable repayment plan. Speaking to a debt settlement lawyer can help you understand what solutions are available.

Protect Your Personal Credit Before It’s Too Late

Are you worried that your business debts are affecting your personal credit? The Law Office of Joel Gonzalez can help. As an experienced bankruptcy attorney, Joel Gonzalez provides personalized guidance to protect your personal assets and resolve your business-related financial challenges.

Whether you need advice from a Chapter 7 bankruptcy attorney or assistance from a Chapter 13 bankruptcy attorney, we’re here to provide the answers you need.

Find out if creditors can block your bankruptcy in Texas. Please link to LFPA3.

Call the Law Office of Joel Gonzalez at (361) 654-DEBT to schedule a consultation and learn how we can help you protect your personal credit and get back on track.