I'm in the process of selling my business, and we've hit a snag. The buyer wants to settle a business debt with a supplier, but I personally guaranteed that debt years ago. Does the personal guarantee just disappear if the debt is settled for less? Or am I still on the hook for the full amount? Anyone been through this? My lawyer is being vague.
debt settlement
What happens to your personal guarantee during a debt settlement?
Your lawyer is vague because it depends on the guarantee language. Usually a settlement doesn't extinguish the guarantee unless the creditor explicitly releases it. Ask for a written release from the supplier.
I went through something similar. The supplier agreed to settle with the business but came after me personally six months later. It was a nightmare. Definitely get everything in writing and make sure your release is airtight.
Well, the guarantee doesn't magically vanish just because someone shakes hands on a settlement. Who told you it would? The buyer? Because that sounds like their problem, not yours.
That's a good point. If the buyer is driving the settlement, they might be assuming your guarantee gets wiped. But the supplier can still pursue you. Make sure the settlement agreement names you and releases you.
Lawyer here (not your lawyer). A personal guarantee is a separate contract. Settling the underlying debt doesn't automatically releae the guarantor unless the creditor agrees. In fact, some settlements include a clause preserving the guarantee. Read the fine print.
GravelRoad, Good to know. So the OP could actually be worse off if the settlement includes a clause that keeps the guarantee alive? That seems backwards but believable.
This whole thing is why I never sign personal guarantees. But too late for that advice, I guess. Good luck.
I had a guarantee on a lease that was settled. The landlord released me in the settlement, but only because I insisted. The original settlement draft didnt mention me at all. Always ask for a specific release.
PianoMan88, did you have to pay anything extra for the release? Or was it just a matter of asking?
DallasMaven, no extra money, but I did have to push back a few times. The landlord initially said 'the settlement covers everything' but wouldn't put it in writing. Once I threatened to walk, they added the release.
Also, make sure the release is from the original creditor, not just the buyer. And check if there are multiple guarantors. Sometimes settling with one doesn't release the others. It's a mess.
Thanks, everyone. I'm going to demand a written release from the supplier before I sign anything. My lawyer is now on notice that I want this addressed explicitly.