Many entrepreneurs don't realize that their personal assets (homes, cars, savings, etc.) may be at risk if their business files bankruptcy. This is because many entrepreneurs do business as sole proprietorships, which, in the eyes of the law, is simply the individual doing business under an assumed name. When that happens, there is no business entity apart from the individual: they are one and the same. If business debts force the business to close, all of the assets of the individual are at risk to pay creditors' claims, and if the business files bankruptcy, it's really the individual who is filing, so all of his or her assets pass under the control of the bankruptcy trustee.
Incorporating or forming a limited liability company (LLC) is some protection, but not if banks and other creditors require personal guarantees from the officers, members or shareholders.
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