Business as usual. We're open for face to face meetings, phone and video calls.

Is your businesses suffering? Contact Bankruptcy Advisory Centre for bankruptcy advice, liquidations, and administration. Your one stop shop.

Bankruptcy and Personal Guarantees

Bankruptcy and Personal Guarantees

Personal guarantees are the promises made by individuals to repay the finances of a business or an individual if they fail to pay.  In simpler words, if that business or individual fails to repay the money, you will be held liable.

When you personally sign a guarantee for your family member, friend, or business, you make yourself liable for it. However, this personal liability can be wiped out through bankruptcy.

bankruptcy personal guarantee legal papers

What are Personal Guarantees in Bankruptcy

The most basic requirement of all credit applications, terms of lease and trade agreements signed by individuals or companies is that the director of the company or another individual should sign a personal guarantee. The person who signs the personal guarantee is known as the guarantor.

The main aim of this personal guarantee is to limit the lender’s exposure in case the individual or business defaults. The lender can use the guarantee signed by the guarantor and demand them to pay the outstanding amount.

In case the guarantor fails to repay the amount, they can be held legally liable. The lender has the right to file a lawsuit against the guarantor for repayment of the full amount, with interest, legal cost, and or any other associated costs.

If the guarantor still fails to make the payment, the lender can seek to enforce the judgement or might force bankruptcy proceedings if the debt is more than $5,000. This results in the guarantor potentially ending up in bankruptcy for a debt that another person or company owes.

This is a type of creditor-initiated bankruptcy.

While in some cases the lender is the one who enforces the bankruptcy on the guarantor, there are also cases in which the guarantor seeks legal assistance when the lender starts making demands for the payment the guarantor signed for a personal guarantee.

How Enforceable Are Personal Guarantees?

Personal guarantees are typically enforceable as it is a signed agreement. The lender can force the guarantor to court and demand for a judgement to be made. When the lender starts taking legal actions, the personal guarantee can be quickly enforced.

However, it is essential to note that there are certain documents that are known as guarantees, but legally they are not, which can make it difficult for the lender to enforce them. The court examines the guarantees thoroughly to determine if they are enforceable. The following factors are taken into account:

  • Consideration: There has to be evidence of an offer made and accepted, capacity, intention, and consideration for the personal guarantee to be enforced.
  • Secondary Liability: The document has to establish the fact that the guarantor had secondary liability.
  • Signed: It is crucial that the document has the signature of the guarantor or the signature of their authorised agent. Their name can be mentioned on the guarantee as printed or handwritten.
  • In writing: the document has to be in writing in order to be enforced.
  • Substance over Form: Merely because of the usage of the word ‘guarantee’ doesn’t mean the document can be enforced.
  • Proper Interpretation: The document must have used proper words in relevant clauses, which are the right clauses that can be counted in the court to be enforced, not simply because it is called a guarantee.

A guarantee can’t be enforced if it doesn’t meet these factors or if it hasn’t been in writing.

How Do You Get Out of a Personal Guarantee?

When the guarantee is enforceable, there isn’t really a way out of it. However, there are certain ways that the guarantor can protect themselves from damage. Here are a few of them:

1.   Apply for Personal Guarantee Insurance

Personal guarantee insurance offers a cover for guarantors whose personal assets might become a risk in case the individual or business isn’t able to repay the lender. This insurance covers existing or new agreements and can cover up to 70% of liability.

The drawback is that this insurance can be expensive because if you take out the insurance, it means you are unsure about the company or individual’s ability to repay the loan.

2.   Try Renegotiating

If the individual or company has started doing well and can make repayments without any problems, the guarantor should renegotiate the deal with the lender without the personal guarantee requirement. For instance, the lender might agree to put a limit on the personal guarantee period or a certain percentage of the loan being repaid. It might be difficult but certainly worth trying.

Can Personal Guarantees Be Claimed in Bankruptcy

In some cases, the guarantor can discharge their personal guarantee liability by applying for bankruptcy. It is crucial to get professional assistance in this case. A bankruptcy expert would be able to walk you through the process and identify the next best steps for you.

If you would like assistance or have more questions regarding bankruptcy and personal guarantees, get in touch with the experts at Bankruptcy Advisory Centre.

Reviews

  • I made an appointment with Andrew after finding him on google. I was nervous and apprehensive about what to expect but he made the process of bankruptcy extremely uncomplicated and stress free, allowing myself the opportunity to get the fresh start I was so desperate for. Thank you Andrew I could not recommend you enough.

    Kristy
  • Making the decision to go bankrupt was not easy however once I had spoken to Andrew i felt all my anxiety disappear. Andrew does not judge you and he has an innate ability to put you at ease. He took care of the whole process for me again reducing the stress involved with completing paperwork.
    Thank you very much.

    Hayley Eastough
  • I will definitely recommend Andrew Bell to anyone contemplating bankruptcy. Don't wait! Andrew is there to help. With his knowledge, he can advise you of the best path to take and assist with the mind boggling paperwork.

    Best of all, he is there for you through your entire bankruptcy period. Get your life back, it's not as bad as you think. Thank you Andrew for lifting the burden and allowing me to move on.

    Karilyn Mahon
  • I saw Andrew for 'advice only' on possible bankruptcy due to a divorce. Left an hour later with the paperwork all done and feeling like a new person!

    Andrew was extremely welcoming and made me feel so comfortable with my decision to proceed immediately.

    This was the best investment I have ever made and cannot speak highly enough of Andrew. He doesn't just give excellent service his follow up afterwards is amazing. Thankyou Andrew you made my 'new' life so easy to achieve!

    Vicki Johnston
  • Andrew was very helpful in helping me through the bankruptcy process, as a single mother left with a massive debt from my ex and our previous marriage. I was struggling to keep my head above water on a week to week basis.

    Andrew made me feel at ease immediately and helped me every step of the way, he happily and professionally answered any and all questions I had before, during and after the process. Thanks so much for your help Andrew!

    Aisha Edmonds
  • Would highly recommend Andrew to anyone having financial difficulties. Andrew made me feel very comfortable - he took care of everything and keep in regular contact with me throughout the whole process.

    Service was fantastic and he also keep in regular contact with me when everything had been finalised Thanks Andrew! can now get my life back on track.

    Cassandra Walsh
  • Very prompt service and excellent source of knowledge and information, I highly recommend Andrew's service for a quick turn around of circumstances.

    Eve Damjanovich
  • Andrew put my mind at ease in one easy appointment. Very satisfied with the outcome and service provided. Highly recommend Andrew.

    Tracey Douglas
  • Andrew was a steadying hand with his advice.Showing that things aren't as bad as first thought nor any obstacle insurmountable. If you have questions needing answers, Andrew is the person to ask. Thanks for your advice Andrew.

    Shane Thompson
  • Andrew was very knowledgeable, caring, helpful and compassionate when I went and saw him. He made me feel that I wasn’t the loser and failure that I thought I was being. Even down to the box of tissues on the table.. which I needed. Highly recommend to go see Andrew if your struggling. There is life after!

    Joanne Parker
  • Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.

    Gareth Lane
  • Don't hesitate contacting Andrew, I was stressed, struggled sleeping through debt. Andrew put me at ease. He listened to my situation and we decided on my next move. Andrew is professional and easy to talk too. I would recommend highly to anyone who wants help to give him a call. I appreciate your support Andrew. Regards Brett.

    Brett
  • Andrew has given me back my life!!! After living paycheck to paycheck, I didn’t know what to do. Until I made the big step and booked an appointment with Andrew. As soon as I left his office I felt a huge weight lifted!!!

    Deezy H
  • Andrew was prompt, organised, friendly and efficient with the processing of my documents and made everything very simple for me so I didn’t need to deal with the added pressure and stress. Thank you Andrew for allowing me to start afresh and getting it done within a matter of weeks.

    Kristy-lee

Fill the form below to download our Free Expert Bankruptcy Guide

What you need to know before declaring bankruptcy