Filing for bankruptcy protection as a small business owner can be the first step to getting your finances back on track, and to either reorganizing or eliminating the current debts that the business may owe. In some cases your spouse could be held liable for the business debts when you file for bankruptcy protection, but in other cases the creditors can not try to go after your spouse based on the debts owed by the business going bankrupt.
One important factor in determining whether creditors have the ability to hold your spouse liable for debts that your small business incurred is the state where both spouses and the business are located. Some states use community property laws for married couples, other states follow common law instead. The law used in the state where the business and spouses are located can determine whether your spouse can be held liable for your business debts.
The organization of your business can also affect whether or not creditors can hold your spouse liable when you file for small business bankruptcy protection. If the business is organized as a sole proprietorship then often your spouse will be off the hook for any business debts listed in the bankruptcy petition filed. This is also normally true if you are a general partner in a business that ids filing for bankruptcy.
If the business is owned by both spouses or the business is located in a community property state then the responsibility for the business debts owed may become more complicated. In these situations it is possible that your spouse may be held legally liable for the debts of your small business as a part owner. This may be true even if your spouse is not documented as an owner because they are your spouse and you owned part or all of the business.
If you have organized the company as a limited liability company, commonly called an LLC, then it is unlikely that your spouse may be held liable for the business debts. There are many different factors that can determine whether or not a creditor can hold your spouse responsible for business debts that you are declaring bankruptcy for. Each bankruptcy case is different and may have different considerations that need to be examined.
Common law states usually determine that each individual in the marriage is responsible for the personal debts that have been incurred, and are not responsible for debt that their spouse owes. In community property states the issue becomes more complex. These states may view the spouse as liable because all assets of the marriage including the small business are considered to be owned by both spouses.
If you are not sure whether or not your spouse may be held liable by the creditors for your small business when you file for bankruptcy then you should seek legal assistance. An experienced bankruptcy attorney can examine all of the factors in your specific case and then help you understand all of the possible consequences for each action. This legal professional can evaluate the case and advise you on whether your spouse may be liable if you seek bankruptcy protection for your small business.