If I File Personal Bankruptcy What Happens To Corporate Debts I Personally Guaranteed?
By Andy Miofsky, Illinois Bankruptcy Attorney on Jan 11, 2009 in Small Business and Self-Employment
Your individual bankruptcy can discharge your personal debts. Debts that you guaranteed for a corporation can be discharged as to you, but the corporation will still owe those debts.
Most small corporations cannot obtain credit without a major shareholder/owner signing the loan application as a personal guarantee. Often new or small corporations have few assets and can be dissolved as easily and as quickly as they were formed and are not good loan candidates. Lenders typically qualify loans to corporations based on the likelihood of repayment - a risk based on an individual’s promise to pay.
When the individual files bankruptcy, debts guaranteed for a corportation can be discharged as to that individual. A corporation is not permitted to discharge debts in bankruptcy. Even though the individual receives a discharge, creditors can seek payment from the corporation and from corporate assets.
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