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Self-Employed in Wilmington and in Debt?


Small business

Wilmington small business debt solutions

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Being a Wilmington entrepreneur can be immensely satisfying. You control your destiny and decide how you want to do business. Unfortunately, it also comes with the risk of no steady paycheck and the enormous responsibility to generate profit or go without money you need. According to Forbes, roughly 90% of new businesses fail, and entrepreneurs often start several businesses before they find their ultimate success. If your small business in Wilmington is struggling with debt, bankruptcy might be the answer. Here’s what you need to know.

#1 Business Debts Are Your Debts

As a Wilmington small business owner, you and your business are the same. Whether you incorporate or not, as a sole proprietor, to borrow money or purchase assets or equipment to do business, it will be your borrowing, not your business.

Why? A business starting out has nothing to show. You are the primary asset of your business, so it will be your name on the dotted line to finance purchases, to obtain a lease for business premises, or to secure a “business” line of credit or credit card. Those debts are yours personally in most cases.

#2 Business Debts Affect Your Credit

Once your business is established, has grown, and can show continuity, your business may be able to qualify for a Dun & Bradstreet “credit score.” This means when you want business credit, so long as you’re incorporated, a lender might use your D&B score rather than your personal credit score.

However, if your Wilmington business is newer and a sole proprietorship, the only way to get credit to run your business is by using your own credit score and signing a personal guarantee. Then, if you can’t make payments on that debt, your personal credit will suffer.

#3 Business Debts Can Attach to Your Personal Assets 

Say your Wilmington small business has office space, a delivery vehicle, computers, office furniture, etc. Those are all assets. If you can’t pay your business debt, all of these can be seized by creditors – or repossessed if they’re still under financing and your business can be evicted for not paying rent.

But the debt collection efforts won’t stop there if there’s debt remaining after asset seizure (and there usually is). The landlord will demand a penalty and equipment lenders may demand additional payments. When you sign a personal guarantee, you’re putting up your personal assets as collateral.

#4 Business Debts Can't Be Avoided by Shenanigans

If your Wilmington small business is failing, your personal assets might be at risk. However, if your spouse owns the assets and is not a co-owner of your small business, there may be a shield there. But, in most cases, to get business credit through a personal guarantee, you must have assets.

It’s also important to know that signing over personal assets to your spouse because your business is failing won’t help. That’s a red flag, and your company (and you) could be sued into bankruptcy by creditors who want the assets (even personal ones) that guaranteed the debt.

#5 Business Bankruptcy Is Personal Bankruptcy 

For Wilmington entrepreneurs starting out, you and your business are the same. This means that if your business is deep in debt and can’t continue operations, bankruptcy might be a good solution. It also means that business and personal bankruptcies are one and the same.

In a sole proprietorship, you need only file personal bankruptcy, not business bankruptcy. Chapter 7 bankruptcy can wipe out most unsecured debt like credit cards and signature loans. Leftover balances from terminated leases and repossessed equipment can also be wiped out.

If you own a Wilmington, North Carolina small business that’s struggling to stay afloat but mired deep in debt, bankruptcy might be the best solution. North Carolina bankruptcy offers a reset, and then you can try again later with a new business venture without debt wrecking your life.

To find out more about the benefits of bankruptcy for small business owners, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 for a free Wilmington bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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