When your enterprise struggles financially, you might have considered dipping into your personal funds to pay business debts. While it may seem like a quick solution, using personal money to rescue your business is rarely advisable due to its significant risks and potential consequences.
Exploring all your options for debt relief, such as bankruptcy, is crucial before you take any step.
Do not risk your personal financial stability
In New York, business owners have certain protections under the law. The concept of the “corporate veil” separates personal and business assets. Using personal money to cover business debts can blur this line and expose you to legal and tax implications.
This move can put your assets, such as your home and savings, at risk. The strain on your finances can also impact your ability to meet other obligations, such as household expenses or personal loans.
Mixing personal and business finances can also harm your credit score. If the company fails, you could face financial ruin on both fronts. This is why it is crucial to keep personal and business finances separate.
Filing for bankruptcy might be a more prudent option
Contrary to the belief that declaring bankruptcy is a sign of defeat, this legal process aims to help businesses restructure their finances and address overwhelming debt. It offers several advantages, including:
- Protection from creditors
- Opportunity to restructure debts
- Potential for debt forgiveness
- Time to reorganize your business
Businesses have several bankruptcy options. Each type has its rules and procedures, which can be confusing without proper guidance.
It is important to note that bankruptcy can impact your personal and business credit scores. It may also affect your ability to secure future loans or credit. Still, bankruptcy often provides a clearer path to financial recovery than using personal funds to pay business debts.
When you are ready to file for bankruptcy, make sure to enlist the help of a business and commercial law attorney. This way, you can regain the breathing room needed to get your business back on track.