Economic downturns often highlight a brutal truth that can have a disastrous impact on entrepreneurs. A failed business can not only shatter your dreams, but it can also shatter your life.
Business bankruptcies can spawn personal bankruptcies because entrepreneurs are often held responsible for business debts. It is commonly believed that creating a limited liability company or corporation will protect personal assets, but that may not be true. Many business loans require personal guarantees from owners that will hold them accountable for repayment.
Business Bankruptcy Can Lead to Personal Bankruptcy
It is easy to say that entrepreneurs can avoid personal responsibility for business debts by simply avoiding loan and credit card agreements that require personal guarantees. This isn't so easy though, because most banks and financial companies now require these guarantees before they will approve the mechanisms. It’s also easy to fall into the trap of assuming that things will get better and that plenty of funds will be available to repay the loan or credit card. Unfortunately, that is an assumption that can't and shouldn't be made.
So why do entrepreneurs fall into the credit trap that can ruin them?