Hi, I’m Mike Greiner. I’m a bankruptcy attorney here at the Financial Law Group in Warren, Michigan in Macomb County. Our website is www.financiallawgroup.com and our phone number is (586) 693-2000. I’m here to talk to you today about personal guarantees on business debts.

Something that a lot of people think is that when you have a business, that you’re not going to be liable for the debts that, that you have for the business and that can be true for a lot of the suppliers and other kind of trade debts that you would have. However, when you typically will have a bank loan or a credit card that is a business debt usually there will be a personal guarantee associated with that. Now what that means is even though the debt is a business debt and even though you’ve used that debt for business purposes typically you will be personal liable for that debt just like you would be for personal credit card even though it’s purely something that you used for business purposes and purely something that you used on the base of the business in fact.

Business credit cards typically will not be granted to anybody unless there is a personal guarantee. And that’s usually true also for s.p.a. loans, and other kind of bank loans that would be involved in business cases. So the concern that a lot of people have is that they think that if they shut down a business, that they won’t have to pay on any of these debts anymore. The truth is that usually those debts will follow you, unless you deal with a personal bankruptcy or do some kind of debt settlement. For your personal liabilities for these debts, what makes matters worse a lot of the time is many SBA loans also include a mortgage that is secured by your home. There can be some complex legal issues that need to be addressed to resolve your personal financial liability for any kind of these business debts. Now one thing that’s good about business debts is that there is a different standard that applies.

On the means test for business debts opposed to consumer debts. Let me explain what, what I’m talking about here. When the law changed about five years ago, there was something called a means test that looks at your income, that looks at the size of your household and looks at certain specific deductions you can take to determine if you’re eligible for Chapter 7 bankruptcy.  Well, one of the good things is, is that that means test really only applies if the bulk of your debts are consumer related not business related. However, if you’re a small business person and the bulk of your debt actually are business debts then what that means is that you don’t even have to pass that means just to be able to be eligible for chapter 7 bankruptcy.

So one thing that is good is that you’ll have certain options available to you if most of your debts are business debts as opposed to personal debts and what’s more is the course of rules that even if a debt is a personal debt where you are personally liable for let’s say a credit card that’s a personal credit card if you use those credit cards and those debts for business purposes, and that still applies. An example of business debt is a landlord who owns a lot of real estate but they have a lot of mortgages on all those pieces of real estate. Those would be considered business debts. So you might be eligible for a Chapter 7 case where, because of your income, you might not have been eligible otherwise. So there are some options that are available to people. But what I would strongly suggest someone to do is to talk to a bankruptcy attorney if you’ve got business debts.

Something that’s surprising to a lot of people is that you can often be held liable for them personally, even though they really are business steps. Again with The Financial Law Group here in Warren Michigan, And our phone number is 586-693-2000. And our website is financiallawgroup.com.