The Short Answer
Yes. In most cases, you can file bankruptcy on a business loan you personally guaranteed. When you sign a personal guarantee, you make yourself responsible for the debt, so it becomes your personal debt and not just the company's. Personal debts like this can usually be discharged in Chapter 7 or restructured in Chapter 13. The right chapter depends on your income, assets, and other debts.
Maybe you signed a personal guarantee when your business borrowed money. The business was doing fine back then. Now things have changed. Sales dropped. The business is struggling or already closed. And the lender is coming after you personally for the debt.
This is a scary spot to be in. You may worry that you will lose everything you own. You may wonder if bankruptcy can even help with a business loan you guaranteed.
The good news is that you have options. This article explains how a personal guarantee works, whether you can file bankruptcy on it, and what usually happens in Chapter 7 and Chapter 13 in North Carolina.
The Short Answer
Yes. In most cases, you can file bankruptcy on a business loan you personally guaranteed. When you sign a personal guarantee, you make yourself responsible for the debt. That makes it your personal debt, not just the company's. And personal debts can usually be discharged or restructured in bankruptcy.
Whether Chapter 7 or Chapter 13 is the better fit depends on your income, your assets, and your other debts. A bankruptcy attorney can review your full situation and help you choose.
What Is a Personal Guarantee?
A personal guarantee is a promise you sign that makes you personally responsible for a business debt.
Most small business loans require one. Banks, equipment lenders, landlords, and suppliers often ask the business owner to sign a personal guarantee before they lend money or extend credit. They do this so they have someone to chase if the business cannot pay.
Here is the key point. Without a personal guarantee, the debt belongs to the business only. With a personal guarantee, the debt also belongs to you.
So if the business fails, the lender can come after you. They can sue you, get a judgment, and try to collect from your wages, your bank accounts, and your property.
Why a Personal Guarantee Becomes Your Personal Debt
When you sign a personal guarantee, you turn a business debt into a personal one.
This matters a lot for bankruptcy. Bankruptcy is built to handle personal debts. Things like personal loans, credit cards, and medical bills can usually be wiped out or reorganized.
A guaranteed business loan works the same way once you are personally on the hook. The lender is treating you like any other person who owes money. And bankruptcy can treat that debt like any other personal debt.
This is true even if the business is a corporation or an LLC. The business may have its own legal life. But your personal guarantee pulled you in as a separate promise to pay.
Can You Wipe Out a Personal Guarantee in Bankruptcy?
In most cases, yes. A personally guaranteed loan is usually a general unsecured debt. That means there is often no collateral tied to your personal property. These debts are commonly discharged in bankruptcy.
But there are a few things to watch for.
Was the loan secured by your personal property? If you pledged your home, your car, or other personal assets as collateral, the lender may have a lien. Bankruptcy can erase the debt you owe personally, but a valid lien can survive. That means you may still need to deal with the collateral.
Did you commit fraud? If you lied on the loan application or hid important facts, the lender might argue the debt should not be discharged. Most honest business owners do not have this problem. But it is worth being upfront with your attorney.
Are you still personally guaranteeing ongoing obligations? Some guarantees, like a commercial lease, may keep growing if the business is still using the space. Timing matters here, so talk it through with a lawyer.
For most people, a personal guarantee is fully dischargeable. To learn more about wiping out debt, see our page on Chapter 7 bankruptcy.
How This Works in North Carolina
North Carolina has its own set of rules that affect what you keep when you file.
North Carolina is an "opt-out" state. That means you must use North Carolina's exemptions, not the federal ones. Exemptions are the laws that protect your property in bankruptcy.
Some common North Carolina exemptions include:
- Up to $35,000 of equity in your home you live in (more if you are 65 or older and meet certain conditions)
- Up to $3,500 of equity in one motor vehicle
- Up to $5,000 in household goods, with more for dependents
- Most retirement accounts, like 401(k)s and IRAs
- 60 days of earned but unpaid wages
These rules are meant to be read in your favor. Most people who file bankruptcy in North Carolina keep all or nearly all of what they own.
One special note for married couples. If you and your spouse own your home together as "tenants by the entirety," a debt that only one spouse owes usually cannot reach that home. This can be very helpful if only one spouse signed the guarantee. But there is an exception for IRS tax debt, which can break that protection. This is something to review carefully with an attorney.
Chapter 7 vs. Chapter 13 for a Personal Guarantee
The right chapter depends on your income, your assets, and your goals. Here is a simple comparison.
| Issue | Chapter 7 | Chapter 13 |
|---|---|---|
| How it helps | Wipes out the guaranteed debt completely, often in a few months | Folds the debt into a 3 to 5 year repayment plan, often paying only a portion |
| Best for | Lower income filers who want a fresh start fast | Higher income filers or those protecting non-exempt assets |
| What you pay | Usually nothing to unsecured creditors | A monthly plan payment based on your budget |
| Timeline | About 3 to 4 months | 3 to 5 years |
In Chapter 7, the guaranteed loan is usually erased. You must pass the means test, which looks at your income. Keep in mind the income figures used in the means test change over time, so check current numbers at irs.gov or ask your attorney.
In Chapter 13, you keep your property and pay back what you can over time. Any remaining balance on the guarantee is often discharged at the end.
Not sure which path fits you? Our Chapter 7 vs. Chapter 13 page can help you compare.
What About the Business Itself?
Filing personal bankruptcy does not automatically erase the business's debts. The business is a separate legal thing.
If the business is closed and has no assets, this often does not matter. Once you discharge your personal guarantee, the lender may have no one left to collect from.
If the business is still running, the situation gets more complex. You may need to decide whether to keep it open, close it, or deal with the business debts separately. This is a good topic for a one-on-one meeting with an attorney.
What Should You Do Next?
Take these calm, practical steps.
- Gather your loan papers. Find the guarantee you signed and any related documents.
- List all your debts. Include the business guarantee, credit cards, and any other debts you owe.
- Note any lawsuits or collection letters. If a lender has sued you, the timing matters.
- Write down your income and assets. This helps your attorney see the full picture.
- Talk to a bankruptcy attorney. A short conversation can tell you a lot about your options.
If creditors are calling, suing you, or garnishing your wages, the automatic stay in bankruptcy can stop those actions fast. Learn more on our stop wage garnishment page.
Still wondering if bankruptcy is right for you? Our Do I Need Bankruptcy? page is a helpful place to start.
You Do Not Have to Figure This Out Alone
If you personally guaranteed a business loan and now the debt is on your shoulders, Duncan Law can help. We will review your situation, explain your choices in plain English, and help you decide whether Chapter 7 or Chapter 13 makes sense for you.
You can schedule your free consultation online, or call the office closest to you:
- Greensboro: (336) 856-1234
- Charlotte: (704) 563-1224
- Winston-Salem: (336) 245-4294
- Asheville: (828) 348-5252
- High Point: (336) 294-5800
- Salisbury: (704) 297-4000
Duncan Law serves clients in Greensboro, Charlotte, Winston-Salem, Asheville, High Point, Salisbury, and communities throughout North Carolina.
Frequently Asked Questions
Yes, in most cases. A personal guarantee makes the loan your personal debt. Personal debts can usually be discharged or restructured in bankruptcy.
Not automatically. The business is a separate legal entity. Your personal bankruptcy discharges your personal liability, not the company's debts.
Not always. Whether to close the business depends on its value, its debts, and your goals. An attorney can help you weigh the choices.
Bankruptcy can erase your personal liability, but a valid lien may survive. You may still need to address the collateral to keep the property.
No. The automatic stay stops most lawsuits and collection actions as soon as you file. This includes calls, garnishments, and new lawsuits.
If only one spouse signed, only that spouse is personally liable. Property owned jointly as tenants by the entirety may be protected, with some exceptions like IRS debt.
Most North Carolina filers keep their homes. The homestead exemption protects up to $35,000 in equity, and more in some cases. Your attorney can review your equity.
It depends on your income and assets. Chapter 7 erases the debt fast. Chapter 13 sets up a repayment plan. A consultation can help you decide.
Filing bankruptcy stops the lawsuit and can prevent or undo wage garnishment. Acting quickly gives you the most protection.
Costs vary based on your case and chapter. Many people are surprised it is more affordable than they feared. A free consultation can give you clear numbers.
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Key Takeaways
- A personal guarantee turns a business debt into your own personal debt.
- Guaranteed loans are usually unsecured and can be wiped out in bankruptcy.
- Chapter 7 can erase the debt fast while Chapter 13 reorganizes it over time.
- North Carolina exemptions help most filers keep all or nearly all they own.
- Filing personal bankruptcy does not automatically erase the business's debts.
- Liens on pledged property can survive even after the debt is discharged.
Attorney Insight
In my experience, business owners are often surprised to learn that a personal guarantee can be discharged like any other personal debt. Most honest owners get a full fresh start once the business closes.
