It is not uncommon for business owners to personally guarantee a company’s bank financing, lease obligations, or other debt incurred by the company. Many creditors require personal guarantees as additional security in exchange for granting a loan or extending credit. When a company is unable to pay its debt, the individual who guaranteed the payment may be held personally responsible. If a business debt is discharged in bankruptcy, creditors may still take action against a guarantor. It is imperative to understand how a business bankruptcy may impact an owner’s personal finances. Ben Cushman is an Olympia attorney who represents businesses and their owners in bankruptcies. He has significant business law experience and understands complex corporate law matters. Ben has been licensed to practice law since 1996 and is experienced working with clients throughout the state. Contact us today to schedule a consultation. Our firm also serves Tacoma and other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.
Olympia lawyer advising individuals with personal guarantees in bankruptcy
The discharge of a business’s debt in bankruptcy will not generally discharge a personal guarantor from being responsible for that debt. This means if the business defaults on a corporate obligation, the creditor may take legal action to recover the funds from the guarantor. The automatic stay that will protect the company after filing bankruptcy will not apply to the guarantor. Creditors may continue to pursue collection actions against the guarantor, including obtaining a judgment against them directly, putting their personal assets at risk. It may be possible, however, to protect oneself against enforcement of a personal guarantee by filing personal bankruptcy.
Because a personal guarantee is a financial obligation of an individual and not a business debt, a guarantor may elect to discharge that debt by filing bankruptcy for themselves. This decision can be complicated since personal bankruptcy will involve one’s privately owned property. It may also be an opportunity to discharge or eliminate additional personal debt. Depending upon the financial situation of the guarantor, the debtor’s choice between Chapter 7 or Chapter 13 bankruptcy may be complicated. Under Chapter 7, the debtor’s nonexempt assets are liquidated to help pay creditors. This could mean a guarantor may lose his home or other valuable property to cover a business-related expense. Chapter 13 bankruptcy, on the other hand, would require the individual to repay a portion of their debts, the balance of which may be discharged at the end of the process. A debtor is not required to liquidate assets during a Chapter 13 case. In either case, the individual will be protected from creditors by the automatic stay upon initiating a Petition for bankruptcy, which will stop creditors from attempting to collect the debt. A knowledgeable attorney can assist you in deciding how best to seek relief from a personal guarantee obligation.
Personal guarantees for business obligations can be a valuable tool for start-ups or small businesses building their operations. If a business fails, however, it can mean financial ruin for a guarantor. Ben Cushman is an Olympia lawyer who has represented Washington businesses and residents for over two decades. He will review your case and explain which option will protect your personal property from the business debt. Contact us today to speak with an attorney.
Washington lawyer focused on client service through the bankruptcy process
Ben is an attorney who understands how economic forces may impact a business and its owners. A sudden shift in the economy can force businesses to default on financial obligations, leaving personal guarantors holding the bag. In these situations, Ben reacts quickly to serve his clients’ needs and protect their interests. His clients are treated with respect throughout the process. He prides himself on providing customer service at the highest level. Ben will answer your questions, responding to emails and phone calls quickly. This is true for clients in Olympia and throughout other areas of Washington.
Our firm also serves the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, Chehalis, the King County cites of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.