Will Filing a Business Bankruptcy Get Rid of Personal Guarantees?

Although bankruptcy is very powerful, very rarely will it eliminate your responsibility towards personal guarantees. By signing a personal guarantee, you are bearing full responsibility of obligation to the point that creditors may sue you in your personal capacity.  Similarly, a  business bankruptcy stops litigation against the company not against you personally.

Luckily, an exception exists for an entrepreneur whose business is structured as a sole proprietorship.  Such owners are personally responsible for both personal and business debts. As a result,  bankruptcy filing will eliminate all obligations including nonexempt assets. Consequently, the liability for the personal guarantee will be removed as  well.

If you plan on entering into a Chapter 11 bankruptcy with a signed personal guarantee, it is important to seek legal counsel.

How Does a Personal Guarantee Work?

 When a company is seeking to borrow funds, one of the conditions that many creditors have is that all debtors must sign a personal guarantee. In the event of the business not being able to pay back the debt, the business owner is held personally responsible by way of the personal guarantee. After being pursued for debt, the business owner has one of two options: either file for bankruptcy or pay the company debt with personal funds.

It’s advisable to have a bankruptcy attorney review your situation and help you plan the best course of action for you if you’ve agreed to a personal guarantee that you  are unable to honor.

The attorneys at ZocLaw.com have helped many business owners create a strategy to deal with personal guarantees. Schedule your free initial consultation today. We have also assisted many business owners with: