Don’t Forget Your Personal Guaranty When Filing A Personal Bankruptcy

It is sometimes difficult to figure out exactly what to do when filing bankruptcy. It is confusing and requires expertise and a law degree to figure it all out. However, there are some basic matters that should be understood; you cannot always depend on the lawyer to get it right for you.

One area of confusion I often see is when a small business owner files a personal bankruptcy to get rid of credit cards or other personal obligations that are causing real problems and they draw too heavy a line between business and personal debts. Simply stated, every personal guaranty signed is exactly that–a personal debt. It’s no longer just a business debt and thus should always be included in a personal bankruptcy even though it stems from a business obligation.

There may come a time when your business fails and it would be a huge advantage if your personal guaranty was discharged by the bankruptcy. This would eliminate any potential obligation for the business debt and free you from what could be a huge shortfall liability. The business and the stated collateral will still be responsible for the debt, but if failure occurs, won’t it be great if there are no personal guaranties to contend with?

Unfortunately, I have seen too many bankruptcy petitions that neglected to include the secure bank guaranties and thus when the business failed the owner, the guarantor was unnecessarily held responsible even though the debtor filed a personal bankruptcy and failed to list the bank loans as contingent personal debt through the guaranties. Had they been listed, nothing would have happened to the business or the collateral, it would just have the effect of eliminating the personal guaranty aspect of the obligation.

You must make certain this exposure is eliminated if you are filing for a personal bankruptcy. Just because it is a business debt and you are filing a personal guaranty, don’t forget the personal guaranty aspect of this business debt and add the bank to the matrix. You will never be sorry and if your business does fail, you will be very thankful you did.