Did you Personally Guarantee that Loan?
When you are filing for Chapter 7 bankruptcy, one question is constantly on your mind whenever you are discussing any one of your debts: is it dischargeable? Very often, the answer is yes, but only under certain conditions. Personal guarantees are no exception. Given that they can be somewhat complex, it is often best to have an attorney on your side to help you understand the criteria for dischargeability.
What Is A Personal Guarantee?
A personal guarantee is defined as an agreement that makes the guarantor (that’s you) liable for their own or a third party’s debts and/or obligations. If the borrower defaults, the lender can take the guarantor’s assets as payment of the debt. With a personal guarantee, the lender also does not usually have to seek repayment first from the debtor; if it is easier for them, they can simply seize the guarantor’s assets and go from there. This is a somewhat dangerous proposition without full faith in the ability of a debtor to repay the loan.
Personal guarantees are most often signed by people starting their own businesses – the rationale of most lenders is that if the business fails, but the owner signs a personal guarantee, then they can still recoup their investment. In community property states such as California, a spouse may be required to sign as well, for added assurance that the lender will be repaid even if the business fails.
Is A Personal Guarantee Dischargeable?
The question of dischargeability boils down to one very simple question: are you the one filing for bankruptcy? Or are you the one who signed a personal guarantee for someone who is filing for bankruptcy?
As a general rule, if you are filing for personal bankruptcy, a personal guarantee is dischargeable unless the underlying debt is itself non-dischargeable. A business bankruptcy will not eliminate any personal guarantees, because your personal assets are what are in question. A business bankruptcy would eliminate the ability of creditors to reach business assets, but because you signed a personal guarantee, your personal assets (such as your home and car) would still be on the proverbial hook.
If you signed a personal guarantee for someone else’s debts, you are, in effect, a co-signer. Co-signers remain liable for debts even after the debtor has filed bankruptcy; the reasoning is that since the debtor may have no assets, the co-signer’s assets may be reachable so the debt can be paid.
Contact A Bankruptcy Attorney For Help
If you need assistance Dowe Law Firm can help. We have a long list of satisfied clients, and we will do our best for you. Contact us for a consultation today at 510-233-7700.