Montana Small Business Bankruptcy: Who is Responsible for the Debt?

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I get this question regularly from Montana small business owners who are considering small business or personal bankruptcy. The answer is: it depends.

For many Montana small business owners the line between personal and business finances is often blurry. Montana business owners are especially hard working folks who put their blood, sweat and tears into their businesses. If there is one thing I’ve learned in over 25 year of practicing bankruptcy law, it is that each case is different and the circumstances will determine who is responsible for the debt when bankruptcy is declared. (Which is why people hire certified bankruptcy experts like me to guide them through the bankruptcy process. Would you trust a complicated knee injury to a doctor that was not board certified?  Of course not.  If you have financial problems related to your small business, you should consider the only dual board certified business bankruptcy specialist in Montana.)

Here are some general guidelines about debt related to small business bankruptcy:

If the debt is owed by the company or the LLC, then you can just walk away. It isn’t your problem. However, if you are one of the many Montana small business owners that has a personal line of credit attached, creditors can come after you personally, putting your bank accounts and assets at risk.

Since few small business have debts that aren’t personally guaranteed, a personal bankruptcy filing may eliminate any personal guarantee liability on your part.

If your Montana business is a partnership, you can be held responsible for the debts. The business itself is not a separate legal entity from the general business partners and, therefore, may be sued individually for the debts.

If you’ve blatantly disregarded the separate corporate entity and used the corporation as a tool for personal business then you are not entitled to protection of personal assets.  This quote sums it up: “In order to preserve protection against personal liability you must show that you have a real business, not just a sham created to dodge personal liability.” ( 9 Ways to Keep Your Corporate Liability Protection Intact by Donna Seyle)

If your Montana business is struggling and you’ve got questions about how best to protect your personal assets during bankruptcy, contact us at (406) 752-5616 for proactive asset protection planning  or a consultation. James H. Cossitt is Montana’s only dual board certified attorney in both business & consumer and bankruptcy law. Cossitt Law provides sound legal services to clients throughout Kalispell, the Flathead Valley and Northwest Montana.  Small and medium size business cases are our core area of expertise, going back to the farmer cases in the late 80’s and 90’s in Iowa.


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