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?
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: