A personal guarantee is a separate promise you made as an individual, on top of your business’s promise to pay. Closing, dissolving, or even bankrupting the business ends the business’s existence. It does not end your personal guarantee, which is a contract between you and the creditor directly.
The short answer: Dissolving an entity does not touch a personal guarantee, because the guarantee was never a claim against the entity — it was a claim against you. The liability shield only covers debts you did not personally guarantee. Payroll and sales tax trust-fund liabilities can also follow you personally by statute, guarantee or not. Bankruptcy can discharge guaranteed debt, but settlement and the guarantee’s own limits are worth checking first.
The liability shield an LLC or corporation provides only protects the owner from business debts they never personally guaranteed. The moment you sign a personal guarantee — common for merchant cash advances, SBA loans, commercial leases, business credit cards, and vendor credit lines — you become a co-obligor as an individual, separate from the entity. Dissolving the entity does not touch that separate personal contract. The creditor’s claim was never really against a company that no longer exists; it was against you.
There is a second category worth knowing about even without a signed guarantee: payroll and sales tax trust-fund liabilities. Many states and the IRS treat “responsible persons” at a business as personally liable for unpaid trust-fund taxes by statute, regardless of any guarantee.
This is worth checking directly rather than assuming in either direction. Pull your loan, MCA, and lease agreements and look for a signature block labeled “Guarantor” or “Personal Guaranty,” separate from the business’s own signature line.
Debts that commonly carry a personal guarantee include SBA loans, where the SBA generally requires a guarantee from anyone owning 20% or more of the business; most merchant cash advance agreements; commercial leases; business credit cards; and vendor lines of credit. Not every business debt is guaranteed — but the ones that are are worth knowing about before a creditor calls, not after.
Once a debt is personally guaranteed, a creditor can sue you as an individual — the business being closed does not change this — obtain a judgment, and then pursue personal assets to satisfy it: wage garnishment within state and federal limits, personal bank accounts, and in some cases liens against real estate you own.
This is a separate, later-stage process from the day-to-day collection activity the business may already have experienced. A guarantee claim against you personally follows the same judgment process described in can a merchant cash advance company freeze your bank account — just aimed at your personal accounts instead of the business’s.
Often, yes. Chapter 7 or Chapter 13 bankruptcy can discharge personally guaranteed business debt the same way it discharges other unsecured debt. But there are real exceptions and tradeoffs: certain debts, including some tied to fraud, are not dischargeable, and bankruptcy carries its own costs in credit impact and potential exposure of other personal assets through the bankruptcy estate, depending on your state’s exemptions. This is a decision to work through with a bankruptcy attorney based on your full financial picture, not a default first move.
A negotiated settlement directly on the guaranteed debt is often the most flexible path, because it is a private negotiation rather than a court process and it can happen at almost any stage, including after a judgment in many cases.
It is also worth confirming the actual guarantee language. Some guarantees are “limited,” capped at a specific dollar amount, rather than unlimited, which changes your real exposure significantly.
And check your state’s statute of limitations on written contracts. It varies meaningfully by state, commonly landing somewhere between three and ten years, and a guarantee a creditor waited too long to act on may no longer be enforceable at all. That is a fact to confirm for your specific state and contract date rather than assume in either direction.
One caution on who you bring in to negotiate: if a firm is paid a percentage of what it claims to have saved you, its incentives and yours are not the same. That is the subject of the hidden cost of contingency-fee debt firms.
If I close my LLC, am I still personally on the hook for its debts?
Only for debts you personally guaranteed, or for certain statutory obligations like payroll and sales tax trust funds. Ordinary business debt you never personally guaranteed generally stays with the now-closed entity.
Does the business have to still exist for a creditor to sue me on a guarantee?
No. A personal guarantee is a contract between you and the creditor directly, separate from the business’s own obligation, so it survives the business’s closure or dissolution.
Can bankruptcy get rid of a personally guaranteed business debt?
Often yes, through Chapter 7 or Chapter 13, but there are exceptions such as debts tied to fraud, and real tradeoffs. This is worth discussing with a bankruptcy attorney rather than assuming it as a first move.
Is every business debt personally guaranteed?
No. Check the actual signature page. Only debts where you separately signed as “Guarantor” carry personal exposure, and that is worth confirming line by line rather than assuming.
This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Renaissance Capital Advisors provides business consulting and referral services only and is not a law firm, CPA firm, licensed financial advisor, or debt settlement provider. Laws and filing procedures vary by state and change over time; consult a qualified attorney licensed in your state about your specific situation.
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