When you are personally liable for your business debt

Lesson Details:

Video Transcription: Do people have personal liability for their debt that their business has their personal viable even if they're in a corporation this video is brought to you by Appy Pie’s Academy that's a great question because I think it's one of the most misunderstood financial pieces in small business a lot of times because if somebody has set up an LLC or a corporation and they have separate books in their mind the business and themselves are very very separate yeah and in for tax purposes they're separate and that is all fantastic however depending on how you incurred this debt or what the structure is of the debt you could be liable for the whole enchilada and as a bankruptcy attorney that's when I started to see the personal bankruptcies where we are filing a personal bankruptcy for the business owner as opposed to we just could close down the business and the business owner could walk away so no when you take out credit card debt even if it has the business name on the card almost a hundred percent of the time there's personal liability there you have signed your name to that card interestingly enough even a lot of corporate cards like that a big corporation would give you to use a lot of those have personal liability - for w2 employees that's a little bit of a side piece but I'm telling you that just to tell you even if there's personal liability even there then there's definitely personal liability when you know Bob Smith uses a credit card to start his restaurant anytime you attach anything personally like a house or whatever even if you went to use that money for the business you know that that's a personal debt and if you've attached something like a house that's gonna stay on there most bank loans and lines of credit are gonna be personally guaranteed so they're not gonna want to just see Bob's restaurant on the loan they're gonna want to see Bob Smith and Bob's restaurant because that gives the bank the option to either collect from Bob's restaurant or Bob Smith so just know these creditors they're sophisticated you know they've protected themselves five ways from Friday and you're not getting one over on them they know how to collect so almost all business debt has a personal guarantee to it which means if the business can't pay it you will pay it personally it is in most instances is it the debt secured or non-secured or it could be both like a credit cards an unsecured debt yeah but a loan on a house is a secured debt so the difference between is secured and an unsecured debt is that there's a piece of collateral behind it so like a car loan there's a secured debt a home loan is a secured debt if you ever bought furniture on credit that's technically our jewelry that's a secured debt so if there's something that they're gonna come take from you if you don't pay it it's a secured debt if there isn't it's it's unsecured and it's actually a lot of unsecured to me most lines of credit are unsecured credit card debts the credit card is then secured as well but just because the unsecured doesn't mean that you know a personal liability you still have personal liability which means they're gonna come sue you for that debt they're gonna get a judgment and then they're gonna look around at all your stuff and see what they can take to to satisfy that judgment.