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Most shareholders or LLC members do not have personal liability for their business debts.  As a consequence, banks and suppliers often do not extend credit to smaller businesses without a personal guarantee.

What is a Personal Guarantee?

A personal guarantee is a promise that an individual will pay off a loan, lease, or contract if the business does not.  Therefore, an individual who gives a personal guarantee waives their limited liability and subjects themselves to potential suit by a creditor.  A lender will be able to pursue the guarantor’s personal assets.Orange County business litigation attorney

Have a Business Finance Lawyer Review Your Contracts

It is very important that individuals check for personal guarantee clauses before they sign any business contracts.  Personal guarantee clauses are common in business vehicle loans, business equipment loans, supplier contracts, lines of credit and commercial leases.

Lenders in commercial transactions have sophisticated lawyers.  These lawyers are experts at creating one-sided contacts that favor the lender.  Because the risks are high, shrewd business owners understand the importance of having the assistance of an experienced lawyer.

Similarly, if you already have personally guaranteed debt, do not wait to contact your lawyer.  If a dispute or default is likely, contact your lawyer immediately to obtain advice.  At Brown & Charbonneau, LLP we have significant experience representing business owners, lenders and borrowers in these matters.

Your Options if You’re Being Sued

  1. Pay your debts. If you are being sued, ensure your business pays off the debt.
  2. Loan workouts. Alternatively, the business can negotiate a settlement for less than is owed. Loan workouts are negotiated settlements of loan defaults.
  3. Determine if Bankruptcy is Appropriate. If the business or the personal guarantor cannot pay the debts, Chapter 7 personal bankruptcy can eliminate personal liability for the business debts.
  4. Other Options. Alternatively, you can utilize creative options like an “assignment for the benefit of creditors” or liquidating business assets yourself.

We understand the laws on personal guarantees and we have proven experience in this complex area. Contact Brown & Charbonneau, LLP today, by calling 714-406-4434 or contact us online to learn more about what we can do for you.