October 14, 2013. Businesses of all sizes, from small family-owned businesses to national or international corporations, contact me routinely when they are having trouble collecting debts. One of the first things I want to know is whether any individuals have signed a personal guaranty relative to the debt. What is a personal guaranty? Generally speaking, it’s a document signed by a person which obligates him or her to pay a corporate debt in the event the corporation fails to do so.
Personal guaranties are signed frequently by owners of businesses who are seeking credit, whether through a monetary loan or perhaps credit vis-à-vis goods or services received in advance of payment. Without a personal guaranty, a debt collection action may be limited to efforts directed towards the debtor-corporation; if the corporation is judgment proof, you might end up “spending good money chasing bad money.” However, if the corporation’s owner has signed a personal guaranty, he or she cannot hide behind the corporate liability shield and can be sued personally. Therefore, it is vitally important that, when seeking to collect a debt, you investigate whether there are any applicable personal guaranties. It is equally important, when providing credit to a business, to consider whether you want to insist on a personal guaranty before providing such credit. Click here for a recent published decision in which the Goosmann Law Firm prevailed on appeal to the Nebraska Supreme Court in a business dispute involving the enforcement of a personal guaranty.