Does My Business Bankruptcy Affect My Spouse's Credit?

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Does My Business Bankruptcy Affect My Spouse's Credit?

Having business debt is not only difficult for the business entity. In some cases, that debt may also affect the executive board’s spouses. Though it may seem unfair, this debt will only affect the spouses depending on how the business entity is formed.

Will My Business Debt Affect My Spouse?

A business debt will affect the spouse if you are personally liable for the debt. Generally, if you are the sole proprietor of the business or if you are a general partner in the corporation, then you will have personal liability.

However, if you are merely a limited partner, you will not be personally liable for any of the business debts unless the creditor can pierce the corporate veil. In other words, if you step bound the bounds of a limited partner and acted like a general partner, then you will be treated like a general partner.

Furthermore, a spouse will be liable for business debts if she was a cosigner or guarantor of the debt.

Common Law States

Most states follow the common law in regards to debt. As such, spouses are only liable for debts if she was a cosigner or guarantor. A caveat exists if both spouses are joint partners or owners of the business.

Community Property States

Unfortunately, the same is not completely true for states that follow the community property laws. As such, any debt acquired during a marriage is equally shared amongst spouses. However, creditors can only collect from the spouse’s community property and if the creditors cannot collect from the debtor-spouse first. Nonetheless, creditors cannot touch the spouse’s property from prior to marriage.

Consulting an Attorney

If you are concerned about your debt affecting your spouse, consult a bankruptcy lawyer for assistance. If you have yet to form your business, a business formation lawyer can help prevent any of the business debt from affecting your spouse.

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Last Modified: 12-15-2014 11:35 AM PST

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