Personal Guarantee of Business Debts

• Business owners frequently sign a personal guarantee of business debts. The result of a personal guarantee is that if the business defaults on the loan, the lender can collect from the business owner. A business owner who personally guarantees a business debt is like a co-signer on the loan. Two separate liabilities exist: The business is liable on the entire balance of the debt, and the owner is liable on the entire balance of the debt.
  
  

Personal Bankruptcy

• A successful bankruptcy eliminates your liability on debts. The debts themselves still exist after the bankruptcy is over; you simply do not have to repay them. If you have personally guaranteed business debt, you can file a personal bankruptcy to discharge your personal obligation. The business will still be liable on the entire balance, because your personal bankruptcy applies only to your personal liability.
  
  

Corporate Bankruptcy: Liquidation

• A liquidation bankruptcy can be appropriate if you are closing your business. Your personal bankruptcy discharges your personal liability; a business Chapter 7 is simply a method for liquidating your assets and repaying some of the creditors some money. Corporate Chapter 7 debtors do not receive a bankruptcy discharge, however. A bankruptcy attorney can tell you if a Chapter 7 for your business is worthwhile; in some circumstances, you can file your personal bankruptcy and then wind your business down without filing a business Chapter 7.
  
  

Corporate Bankruptcy: Reorganization

• If you plan to keep running your business but want to eliminate your personal liability, you can file a personal bankruptcy and also file a Chapter 11 case for your business. Chapter 11 allows businesses to reorganize and restructure; you propose a plan for repaying some or all of your creditors depending upon prior agreements and the type of debt you owe. Your personal bankruptcy, which can be either a Chapter 7 or Chapter 13 depending upon your circumstances, will eliminate your personal liability on the business debts. The Chapter 11 will reorganize your business and give you the potential to operate successfully in the future.