One reason small-business owners are sometimes blindsided by the consequences of the loan documents they signed is a natural lean towards optimism. Entrepreneurs usually have faith in what they’re doing. Planning for bankruptcy isn’t something that comes naturally to them. Nevertheless, there are some general guidelines to keep in mind. Sole proprietors should understand that their personal and business assets are considered the same. If debts overwhelm the business, the only way out is probably a personal bankruptcy filing.
Business owners who operate an LLC or a corporation should understand exactly what they’re offering for collateral. Don’t try to get out of personal guarantees by transferring homes or other assets to your family after the paperwork is signed; That would be fraud.