Will Filing a Business Bankruptcy Get Rid of Personal Guarantees?

Under very rare circumstances will  bankruptcy remove your obligation to honor your personal guarantees. Signing a personal makes you liable for company debt even when the business is not generating a profit. As such, filing a Chapter 11 bankruptcy does not make you immune from your personal guarantee.

Like wise, filing a business bankruptcy halt litigation against the company only. You can be sued in your personal capacity in you are a guarantor.

Fortunately, an exception exists for an owner who holds a business who has a sole proprietorship. Such owners are personally responsible for both individual and business debts. Consequently, filing a Chapter 7 bankruptcy will wipe out all liability including the personal guarantee. It’s important to note that if you file a Chapter 11 bankruptcy and you are able to negotiate debt, a signed personal guarantee can make that process very complicated. It is recommended to seek legal counsel should that be the case.

Why do business owners sign personal guarantees?

A personal guarantee is a tool used by creditor to ensure that the financial obligation will be repaid, particularly when dealing with small business owners because there is greater risk of failure.

How Do  Personal Guarantees Work?

 When any business uses a line of credit for purchases, the vendor may make it mandatory for them to an agreement that contains a personal guarantee. This indicates to the lender that if in the event the the company cannot pay back the debt,the lender will pursue the personal guarantee, often leaving the guarantor with the following options: file a personal bankruptcy or pay the company debt out of individual assets.

If you have found yourself in this unfortunate position, it is important to seek out legal counsel to assist you with a game plan.

Our attorneys at Shipkevich PLLC have helped many business owners with unsurmountable amounts of debt. During your free consultation we will explore every option available to you. We can also help with: