When your Ohio company cannot repay its debts, filing for bankruptcy can seem like a way to gain protection from a personal guarantee. In most cases, it will not.
By signing a personal guarantee, you agree to repay a covered business debt if the company fails to do so. This obligation remains separate from the company’s duty to repay it.
Why the company’s bankruptcy may not protect you
A Chapter 7 or Chapter 11 filing generally triggers an automatic stay that pauses many collection efforts against the business, including lawsuits, repossessions and enforcement of judgments. However, the stay usually does not protect an owner who did not personally file for bankruptcy. Chapter 13 provides temporary protection for a co-signer on certain consumer debts, but that protection generally does not apply to guarantees tied to commercial obligations.
If the company stops making required payments, a creditor can demand payment under the guarantee. Even if the business completes bankruptcy and no longer owes the debt, the creditor may still have the right to collect the guaranteed amount from you.
Which guarantee terms should you review?
Start by gathering the signed document, original loan agreement, amendments, payment records and any default notices. Review whether the documents include:
- Language making the guarantee apply to future loans or additional credit
- A dollar limit, expiration date or other restriction
- Clauses waiving certain notices or limiting possible defenses
- Cognovit language, which may allow a creditor to obtain a judgment against you without first holding a standard court hearing
- Terms covering interest, collection costs or attorneys’ fees
These records can show whether later amendments or renewals changed the promise you originally signed.
Understand what the filing leaves unresolved
A company’s bankruptcy can address its debts without resolving what you personally agreed to pay. Reviewing the agreement can help you identify which debts it covers and how much you may owe. Depending on your circumstances, filing your own Chapter 7 or Chapter 13 case could provide a way to address a dischargeable guarantee debt. Reliable legal guidance can help you understand how the business filing affects your personal finances.