Can Bankruptcy Wipe It Out?
If you signed a personal guarantee for a loan, lease, or business debt, you may be wondering:
- Can I waive my right to file bankruptcy?
- What if I co-signed instead?
- What if the debt is tied to my business?
- Does bankruptcy eliminate personal guarantees?
These are common — and important — questions. Here’s how it works.
What Is a Personal Guarantee?
A personal guarantee means you agreed to be personally responsible for a debt if the primary borrower fails to pay.
Common examples include:
- Business loans
- Commercial leases
- SBA loans
- Equipment financing
- Business credit cards
Even if the loan was for a business, a personal guarantee makes you personally liable.
That means your personal assets may be at risk — not just the business.
Can You Waive Your Right to File Bankruptcy?
Short answer: No.
You generally cannot legally waive your right to file bankruptcy in advance.
Some contracts include language saying you:
- Waive bankruptcy protections
- Agree not to discharge the debt
- Consent to judgment
- Waive exemptions
Courts typically do not enforce pre-bankruptcy waivers of your right to file or discharge debts.
Bankruptcy rights are federal rights. Private contracts usually cannot eliminate them.
What If I Co-Signed Instead of Personally Guaranteed?
A co-signer is also personally liable.
If you co-sign:
- The creditor can pursue you directly.
- The creditor does not have to sue the primary borrower first.
However, how bankruptcy affects the co-signer depends on who files.
If YOU file bankruptcy:
Your personal liability may be discharged.
If the primary borrower files:
The creditor may still pursue you as co-signer (unless specific protections apply, such as Chapter 13 co-debtor stay in certain consumer cases).
Does Bankruptcy Wipe Out a Personal Guarantee?
In many cases, yes.
If you file Chapter 7 or Chapter 13 bankruptcy, a personal guarantee is generally treated like any other unsecured debt.
If discharged:
- The creditor cannot collect from you personally.
- The business may still owe the debt.
- The creditor may pursue business assets.
But your personal liability can often be eliminated.
What If I Have a Business?
The answer depends on the structure.
Sole Proprietor
There is no legal separation between you and the business. Bankruptcy affects both.
LLC or Corporation
The business is legally separate.
If you personally guaranteed a business debt:
- The business remains liable.
- You are also liable.
- Your bankruptcy can eliminate your personal liability.
- The business may still face collection action.
Important: A business itself may need to file its own bankruptcy (such as Chapter 7 or 11), separate from your personal case.
What Bankruptcy Does NOT Do
Bankruptcy may not eliminate:
- Certain tax obligations
- Fraud-based debts
- Debts incurred through misrepresentation
- Some SBA fraud-related claims
Each situation must be evaluated carefully.
What About SBA Loans and Commercial Leases?
SBA loans almost always require personal guarantees.
Commercial leases often include personal guarantees too.
In many cases:
- Bankruptcy can discharge your personal guarantee.
- The landlord or lender may still pursue the business.
- Timing matters.
If a lawsuit has already been filed, strategy becomes even more important.
Can Creditors Sue Me Personally After the Business Closes?
Yes — if you signed a personal guarantee.
Many business owners assume that forming an LLC protects them from all liability.
But if you signed a personal guarantee, you stepped outside that protection.
The LLC may protect you from routine business obligations — but not from debts you personally guaranteed.
The Key Takeaway
Signing a personal guarantee means:
You agreed to be personally responsible.
But that does NOT mean you gave up your bankruptcy rights.
In many cases, bankruptcy can eliminate personal guarantee liability — even if the business fails.
The real questions are:
- Is the debt secured or unsecured?
- Has litigation started?
- What assets are exposed?
- Is the business still operating?
- Are there co-signers involved?
The Bottom Line
Personal guarantees are serious — but they are not the end of the story.
You generally cannot waive bankruptcy rights in advance.
If you co-signed, you are personally liable — but bankruptcy may protect you.
If you own a business, structure and timing matter.
And yes — in many cases, bankruptcy can wipe out personal guarantees.
If you are facing collection on a personal guarantee, the sooner you evaluate your options, the more leverage you may have.
