Will Filing for Bankruptcy for My Corporation Eliminate My Personal Guarantee?

If you’re a small business owner or corporate officer staring down mounting debt, filing for bankruptcy in New York might seem like a clean slate. But if you personally guaranteed any of your business’s obligations, you might be asking an important question:

“If my corporation files for bankruptcy, will that get rid of my personal guarantee?”

Unfortunately, the answer is no. Filing for corporate bankruptcy does not eliminate your personal liability on debts you personally guaranteed. Here’s what you need to know and what steps you can take to protect yourself.

What Is a Personal Guarantee?

A personal guarantee is a legal agreement that makes you personally responsible for repaying a business debt if the business cannot. This guarantee overrides the “corporate shield” that typically separates personal and business liabilities.

Business owners are often required to sign personal guarantees when:

• Applying for small business loans

• Leasing office or retail space

• Getting a business credit card or line of credit

• Working with vendors or suppliers on credit terms

In short, the lender or creditor wants assurance that someone—either the business or the business owner—will repay the debt.

How Corporate Bankruptcy Works

When a corporation or LLC files for bankruptcy—whether under Chapter 7 (liquidation) or Chapter 11 (reorganization)—the business seeks relief from its debts. The goal is to either wind down operations or restructure obligations.

This process can discharge business debts or pause collections against the company, but not against you, if you’ve signed a personal guarantee.

Once the business enters bankruptcy, creditors who hold personal guarantees may shift their collection efforts directly to you. That means the corporate bankruptcy might end up exposing you to lawsuits, wage garnishment, bank levies, or other collection actions.

Why Your Personal Guarantee Still Stands

Bankruptcy law treats a corporation or LLC as a separate legal entity. When your business files, only that entity receives protection.

If you signed a personal guarantee, it’s considered a separate obligation. Even if the business no longer exists or its debts are wiped out, your personal promise remains enforceable unless you take independent legal action.

Your Options If You’re Personally Liable

If you’re on the hook for business debt because of a personal guarantee, you have a few options. First, you can negotiate with creditors. Some lenders may be willing to settle for less than the full amount, especially if they know you’re considering bankruptcy. Creditors would rather get some money back than none. This approach is most successful before a lawsuit or judgment is filed.

Your second option to file for personal bankruptcy. If the debt is significant and you can’t repay it, Chapter 7 or Chapter 13 bankruptcy may help you discharge or restructure it. Filing personally can stop collection efforts and give you a path toward financial recovery. Lastly, there are cases where a personal guarantee might not be enforceable due to improper documentation or changes in the original contract. Make sure to review the validity of the guarantee—your bankruptcy attorney can review the guarantee and advise you on possible defenses.

Common Misconceptions

Misconception #1: My business is an LLC or corporation, so my personal assets are safe.
Reality: The legal structure protects you only if you didn’t sign a personal guarantee. If you did, your assets could be at risk.

Misconception #2: Once the business files bankruptcy, all business-related debt is gone.
Reality: The business may be off the hook, but you may still be on the hook personally for guaranteed debts.

How The Law Office of William Waldner Can Help

If you’re worried about personal guarantees or considering bankruptcy—business or personal—it’s critical to speak with a knowledgeable bankruptcy attorney. At The Law Office of William Waldner, we specialize in helping New York business owners and individuals understand their legal and financial options.

We’ll help you:

• Assess your total exposure to personal guarantees

• Determine whether corporate or personal bankruptcy makes sense

• Negotiate with creditors when possible

• File the appropriate bankruptcy to protect your future

Your personal financial future doesn’t have to be tied to your business’s past. Let’s talk about how we can help you move forward. Call us today at 212-244-2882 to schedule a free consultation.