Asked by: Zhuying Blecherbusiness and finance bankruptcy
What happens if you default on a personal guarantee?
Last Updated: 20th February, 2020
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In this way, can you get out of a personal guarantee?
It's relatively common for a business owner to file individual bankruptcy to get rid of a personal guarantee—and most personal guarantees will qualify for discharge. If it's a nondischargeable debt, however, bankruptcy won't help.
Furthermore, is there a statute of limitations on personal guarantee? Often a promissory note is due “on demand”. If that's the case the statute of limitations expires 6 years after the demand. Many of my clients owe a bank money on a personal guarantee they made for a loan to their corporations. So long as there has been a written agreement the statute of limitations is 4 years.
Keeping this in view, how do you enforce a personal guarantee?
What enforcement options are available
- pursue a claim for the debt by issuing a statutory demand if the guarantee creates a debt obligation on the guarantor;
- pursue a claim for damages if the obligations that are guaranteed are performance obligations; and.
- petition for the bankruptcy of the guarantor.
Do personal guarantees affect credit score?
Signing a personal guarantee doesn't automatically impact your personal credit. A personal guarantee doesn't usually change that. But if you sign a personal guarantee and you don't repay the loan, it's likely it will wind up on your credit as a collection account, or even a judgment, and will hurt your credit scores.