Can You Walk Away from LLC Debts by Filing Bankruptcy?

Starting a business and setting up an LLC is a smart step toward protecting your personal assets from business liabilities. You’ve done it right — formed your LLC, taken out loans, maybe business credit cards, and incurred trade debt with suppliers or contractors.

But what happens if your business runs into financial trouble? Can you just put your LLC into bankruptcy and walk away from all those business debts?

The answer is: it depends.

It mainly depends on the type of debt and, crucially, whether you personally guaranteed any of it.

The Risk of Personal Guarantees: Know What You Signed

Most small business loans, credit cards, leases, and even supplier agreements require a personal guarantee. This means you personally promise to repay the debt if the LLC can’t.

Many business owners don’t realize they signed personal guarantees because these clauses are often buried in loan documents, credit card agreements, or contracts.

When you sign a personal guarantee, you waive the personal liability protection your LLC provides. If your business can’t pay, creditors will come after you personally — suing you, placing liens on your property, or garnishing your bank accounts.

Ignoring such lawsuits can lead to default judgments and serious financial consequences, like losing your home or having your bank account emptied.

What Can You Walk Away From?

If a debt was not personally guaranteed, you generally can discharge it through your LLC’s bankruptcy. Creditors can sue the LLC, but not you personally.

However, any debt with a personal guarantee is effectively treated like your personal debt. You need to respond promptly to any legal action and get legal help immediately.

How Keck Legal Can Help

At Keck Legal, we help business owners:

• Identify personal guarantees hidden in contracts

• Understand your personal liability risks

• Navigate bankruptcy options for your LLC and personal obligations

• Respond effectively to creditor lawsuits and protect your assets

Protect Your Personal Assets

If you’re worried about personal guarantees or facing creditor actions, don’t wait. Contact Keck Legal for a consultation and make sure you understand your rights and options before it’s too late.