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how to handle personal guarantees on business obligations

Published October 4, 2021 by Sasser Law Firm

A lot of times when a small business owner is considering shuttering their company so they can find work someplace else one of their main concerns is how to handle personal guarantees on business obligations? The most obvious way for a small business owner to handle a personal guarantee is for him to file a personal chapter 7 or 13 cases, himself.

If a personal bankruptcy case is not advisable, the backup option is for the owner to liquidate the company assets and to devote the proceeds of that sale exclusively to those business debts for which the officer or owner is also liable. Now, this is a strange topic for me to talk about because I’m a bankruptcy attorney and this strategy actually can help you avoid having to file a bankruptcy case.

Think about it like this: let’s say you’re a house painter, and your company owns a work van, some ladders, and some tools. All those items are worth about $20,000, total. Next, let’s say the company has $100,000 of debt, but one of those debts – let’s say a $20,000 credit card – is personally guaranteed.

young couple filing bankruptcy without a lawyerWell, are the assets of the business able to be liquidated and for you to satisfy the entire $100,000  of business debt from the proceeds? No, they can’t. However, what you can do is liquidate the van and the tools and the ladders, take that money, and choose to pay the creditor that you are personally responsible for to the exclusion of all the other creditors.

Doing that is a way to successfully liquidate and shut down your business so you can do something else, and pay the business’s debts in an honest and responsible way, but also in a smart way so that you don’t suffer any repercussions of the business shutting down and those personal guarantees. It’s complicated but I would love to talk to you about it. We’re around all the time. Come by anytime.

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