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How a business bankruptcy impacts your personal credit score

Even huge companies are not immune to financial trouble. Earlier this year, Toys 'R' Us filed for bankruptcy and announced it needed to close approximately 180 stores across the nation. 

Entrepreneurs considering bankruptcy need to weigh the pros and cons of the process with the value of their companies. It is possible for a business of any size to file for bankruptcy without going under completely. You can expect your company to certainly take a hit with its credit rating, but you may wonder how a corporate bankruptcy impacts your personal credit score.

The truth of the matter is that it comes down to the type of business you run. 

General partnership

Generally, when a company classified as a general partnership files for bankruptcy, it will not impact the personal score of the people who run the company. However, you will still be responsible for paying off all business-related debts. Your company may require liquidation. In this case, your score itself will not drop, but creditors may see the bankruptcy when running a credit report under your name. 

Sole proprietorships

Sole proprietorships carry the most risk in the event your business files for bankruptcy. From a financial perspective, there is no difference on your personal credit report whether you file for bankruptcy or your company does. You are personally responsible for repaying any outstanding debts, and you can expect your personal score to take a hit. 

Limited partnership

Your credit score has the most protection under a limited partnership. You will not be personally responsible for any business-related debts. The one thing you do need to consider is whether your company made any guarantees with creditors in the past. This is why it is always important to read the fine print. If you agreed to pay back a creditor, then you will personally need to pay the money back, and the company bankruptcy can affect your personal rating.  

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