Chapter 7 bankruptcy can help businesses find relief by discharging all eligible debt and liquidating assets. But corporate guarantees can throw a wrench in the works, and in some cases, you may still be liable for that particular debt.

The Craig Black Law Firm regularly helps businesses with bankruptcy-related issues and can answer any questions you have going into the process. When you call my firm at 678-888-1778, I'll be the one answering the phone. You can also fill out my confidential contact form, and I'll get in touch.

Corporate Guarantees and Chapter 7

Often used by businesses closing their doors, Chapter 7 wipes out all eligible debt and gives business owners a fresh start. However, corporate guarantees are separate contracts, making the process of clearing them a little more complicated.

How corporate guarantees are handled depends on the status of the bankruptcy filer. A corporate guarantee has two components:

• Primary borrower: This is the individual who signed the paperwork on behalf of the business.
• Guarantor: This is the company behind the individual signing that paperwork.

Guarantees are designed to protect the creditor if the primary borrower defaults. In that case, the guarantor is responsible for the debt.

Guarantees in Chapter 7

How guarantees are handled in Chapter 7 depends on who is doing the filing. If the business filed for bankruptcy, the primary borrower will still be responsible for the debt. If the individual who signed the agreement files for bankruptcy, the business will be responsible for paying it.

But what happens if both parties file for Chapter 7? At that point, the creditor will need to file a claim through the bankruptcy proceedings for both parties to recoup some or all of the debt.

Sole Proprietorships and Chapter 7

Some small businesses operate as sole proprietorships, and corporate guarantees may be part of that. In that case, the business and the individual operate as one, with little legal separation between the two entities.

If a sole proprietor files Chapter 7 for business debts, both personal and business debts will be included in the filing. Since you are a one-person operation, you will be responsible for personally repaying any debt attached to the guarantee. However, any corporate guarantees will be part of the filing, so it will be up to the bankruptcy court to decide how they're handled.

If the debt that was part of the guarantee was unsecured, the court may decide to discharge it along with your other debts. If the debt had assets attached, though, the creditor would still be able to seize those assets, as is the case with any nonexempt secured assets.

The Craig Black Law Firm and Business Bankruptcy

Business bankruptcy can be complicated, but the Craig Black Law Firm is here to help. We can walk you through each step of your Chapter 7 filing and take a look at your contracts to determine how they'll be handled. Give me a call at 678-888-1778 or complete this contact form.