Does Bankruptcy Clear Personal Guarantees?

If your business is facing financial difficulty and you have secured loans or credit through personal guarantees, you might need to know what happens if you declare bankruptcy.

Bankruptcy will ultimately result in any personal guarantees being cleared, but you may lose personal assets and savings before this. It’s also possible that claims made by lenders on personal guarantees push you into bankruptcy.

Bankruptcy and personal guarantees have a complex relationship, so in this article, the team at Irwin Insolvency explains more.

What Is a Personal Guarantee?

A personal guarantee is a type of loan that’s agreed upon between a business owner or company director and a moneylender.

A lender provides the business with a loan on the basis that if the company defaults on its payments, the business owner is personally liable for the debt.

For example, a business owner may ask a bank for a loan and secure it against their personal assets, such as a house or car. If the business becomes insolvent, the bank may take the business owner’s assets to cover the debt.

Are Personal Guarantees Wiped Out If I Declare Bankruptcy?

If you declare bankruptcy, then any personal guarantees will be wiped out alongside many other personal debts, such as credit cards or utility bills.

While this sounds like an excellent result for individuals, there are more serious implications to consider first. To start, your debts and personal guarantees are only cleared once you’ve been discharged from your bankruptcy.

This takes a minimum of 12 months, and during the bankruptcy process control of your assets and finances will be taken over by an official receiver. They have the power to sell your assets and seize any savings in order to pay the debts you owe, which would include any payments owed on personal guarantees.

If you are a homeowner then declaring bankruptcy could result in your property being sold to pay off personal debts and personal guarantees. You may also be subject to income payment orders for several years after your discharge.

Can Personal Guarantees Make Me Bankrupt?

Personal guarantees could also force you into bankruptcy. This may occur if your company has failed to make payments on a loan that you have personally guaranteed through your assets.

If these debts total more than £5,000, then creditors may force you into bankruptcy in order to recoup the money owed to them. This is a process that must be approved through the courts, but if they are successful, any assets you own could be sold in order to repay the personal guarantee.

Contact Irwin Insolvency Today to Find Out More About Bankruptcy and Personal Guarantees

Declaring bankruptcy offers you the chance to wipe out personal guarantees, and it could offer the fresh start your personal finances need.

Bankruptcy and personal guarantees are often complex though, so it’s important that you seek impartial insolvency advice before taking any action.

Contact Irwin Insolvency today for more information.

Contact Irwin Insolvency today for your free consultation

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0800 254 5122

About the author

Gerald Irwin

Gerald Irwin is founder and director of Sutton Coldfield-based licensed insolvency practitioners and business advisers, Irwin Insolvency. He specialises in corporate recovery, insolvency,
 rescue and turnaround.