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Was the money lent to them personally or to the business?
Was the business incorporated or sole proprietorship?
Thank you for the additional information.
Now back to your initial post:
My parents had a business and a friend loaned them (estimate) $80k for the start of the business. There are papers stating that they would pay them back, but during the financial crisis the business went under. They are now filing suit. Can my parents go to jail for this?
Response 1: No, they cannot. They did not do anything illegal. They just borrowed money that they cannot afford to pay off now.
If they file for bankruptcy will it be better for them?
Response 2: Yes, the debt would be wiped out if their bankruptcy case is successful. Once the bankruptcy case is filed, the lawsuit would be stopped.