What bankruptcy takes from you: Costs that remain.
What bankruptcy takes from you depends on how you trade and what you signed. If you trade in your own name, the business's debts are yours. Also, bankruptcy marks your credit file, and some debts survive it entirely.
When the shield has a hole in it.
As a sole trader, autónomo or persona física con actividad empresarial, you and the business count as one person. So its debts become your debts. Likewise, a personal guarantee for a company loan puts a hole in the company's shield with your name on it. Therefore, structure matters before anything goes wrong.
What bankruptcy takes from you after it ends.
How long bankruptcy stays on credit varies by country. The guide for England and Wales says up to 6 years from the bankruptcy date. In the United States, the Fair Credit Reporting Act allows reporting for up to ten years.
There are also debts not wiped out by bankruptcy. US courts usually keep student loans unless you prove undue hardship. Spain forgives the first 5,000 euros of tax debt, then half above that, up to 10,000 euros per person.
Why kinder laws carry their own price.
In 2004, Jeremy Berkowitz and Michelle White studied small firms across US states. Where people could keep more of their homes, banks refused credit more often and charged more. Meanwhile, Mexico has no general personal bankruptcy, since its Ley de Concursos Mercantiles covers merchants and companies.
List what bankruptcy takes from you in your situation.
Write down whether you plan to trade in your own name or through a company.
List any personal guarantees you have signed or expect to sign.
Questions about what bankruptcy takes from you.
What bankruptcy takes from you if you signed a personal guarantee?
A personal guarantee puts your name on the company's debt. So the company's shield no longer fully protects you.
Which debts does bankruptcy often leave in place?
In the US, student loans usually stay unless you prove undue hardship. Spain limits how much tax debt it forgives.
Does Mexico offer personal bankruptcy?
Mexico has no general personal bankruptcy that wipes out an individual's debts.
Read the whole chapter.
This lesson covers one section of chapter 5, “The worst case is written in a law you have never read”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Can you go to jail for debt: What the law says.
- 02 What bankruptcy takes from you: Costs that remain.
- 03 How to look up bankruptcy law: One honest sentence.
- 04 How long does bankruptcy last: Five legal answers.
- 05 Bankruptcy law and entrepreneurship: The evidence.
- 06 Charles Dickens debtors prison: Then and now.
- 07 No personal bankruptcy in my country: What to do.
- 08 Fear of losing everything: Draw a legal border.