Filing Consumer Bankruptcy for Personal Guarantees

If you own a small business for which you provided a personal guarantee on a loan, or if you provided a personal guarantee for a family member’s business or other type of loan, you could end up in a very complicated situation if the business ultimately needs to file for bankruptcy, or if the other party (for which you gave the personal guarantee) ends up filing for bankruptcy. The issue of personal guarantees and consumer bankruptcy is currently attracting more notice given the terms of some of the SBA loans related to COVID-19 relief. We want to provide you with more information about loans with personal guarantees, and to say more about how consumer bankruptcy may be the only option to discharge a loan with a personal guarantee despite a business bankruptcy.

SBA Loans That Required Personal Guarantees

Anyone who owns a business already might be familiar with the types of business loans that can require personal guarantees, including specific kinds of SBA loans awarded during the COVID-19 pandemic. All SBA loans through the Economic Injury Disaster Loan (EIDL) program of more than $25,000 required collateral, and any EIDL loans of more than $200,000 required a personal guarantee.

Other types of business loans can also require personal guarantees, but the loans through the EIDL program are receiving particular notice now as many businesses that received funding from the SBA are filing for bankruptcy. Any business that received an EIDL loan of more than $25,000 and has since begun the process of filing for bankruptcy ultimately could leave business owners, as well as any other parties who provided a personal guarantee, in a very difficult position.

What is a Personal Guarantee?

What is a personal guarantee, you might be asking? What is the difference between collateral and a personal guarantee? The difference is simple — collateral is an asset that you put forward to secure a loan in the event of a default, while a personal guarantee is a document you sign in which you personally promise to repay the loan in the event that the business cannot repay it.

Anyone who signed a personal guarantee for an SBA EIDL loan, or another type of business loan, will be left to repay that debt if the business files for bankruptcy. Given that most of these loans are for large sums of money (over $200,000 for EIDL loans), it may be possible to file for Chapter 7 personal bankruptcy in order to discharge the loan. Or, if you are not eligible for Chapter 7 bankruptcy, you could be eligible to file for Chapter 13 bankruptcy instead to handle the EIDL loan or other business loan for which you provided a personal guarantee.

Contact Our Oak Park Bankruptcy Lawyers

Sorting out the differences between consumer and business bankruptcy cases can be complicated when the two are intertwined as a result of personal guarantees or co-signed loans. If you provided a personal guarantee for a loan and the borrower (a business or an individual) has now filed for bankruptcy, you may need to consider filing for personal bankruptcy if you cannot afford to personally pay the business loan debt. An experienced Oak Park consumer bankruptcy attorney can speak with you today about your situation and your options. Contact the Emerson Law Firm for more information.


See Related Blog Posts:

Changes to Chapter 7 Bankruptcy Means Test

Possibility for New Bankruptcy Law Reform



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