Most people have ideas about using bankruptcy after business failure that are not true. Myths are very common. Here are some examples:
The business alone can file bankruptcy, and you will be forgiven of any personal liability.
Your business can file bankruptcy, but if you have personally guaranteed debt, you will still be personally liable for that debt. You will need to file an individual bankruptcy to obtain a discharge of your personal liability.
Government debt, such as SBA loans or federal income tax debt, is never dischargeable.
Whether a government debt is dischargeable will depend on many things. Personal liability on SBA loans may be dischargeable in an individual bankruptcy. Most taxes are not dischargeable. This is a complicated area and will require detailed analysis by your bankruptcy attorney.
You can borrow your way out of debt.
There are numerous very high-interest rate business loans available. In desperation, small businesses will take out loans that are simply impossible to pay back. These loans are often secured by everything the business owns and are almost always personally guaranteed. Attempting to borrow at rates that can’t be repaid often limits your options and pushes you into bankruptcy faster.