Personal Guarantee - Spouse
June 19, 2023
by a searcher from Pennsylvania State University in Philadelphia, PA, USA
I am currently exploring ways to protect our assets from potential risks associated with an SBA loan. Specifically, I am seeking strategies to shield our personal guarantee and ensure that our current assets, such as our two homes and a significant portion of our bank accounts, remain safeguarded in the event of any post-transaction business complications such as bankruptcy.
While I have briefly considered the option of divorce as a means to achieve this goal, I believe there must be alternative approaches that are more appropriate and effective. I would greatly appreciate any insights or recommendations regarding strategies that do not involve complete separation. For instance, would it be advisable to discontinue filing taxes jointly? Place both homes and mortgages under the spouse name? Create two checking/bank accounts separate from each other? Anything else?
Additionally, I am interested in connecting with professionals who specialize in asset protection and have experience with SBA loans, specially with experience on SBA loans that have gone awry (lost clients and unable to pay back). Their expertise would be invaluable in guiding me through this process. If anyone has any recommendations or can provide assistance, I would be grateful for your support
from Wayne State University in Detroit Metropolitan Area, MI, USA
I am not a bankruptcy attorney so this is certainly not legal advice and I recommend consulting with a bankruptcy attorney in more detail, but this is my general understanding of Chapter 7 bankruptcy. When you file chapter 7 bankruptcy, an estate is created. Said estate consists of all of your legal or equitable interests in property at the time of the bankruptcy filing. That includes all property in which you have an interest in or a right to at a later time (including foreign property or a judgement with a right to income payable to you at a later date), even if it is held by another person. Meaning a motorcycle you store at your brother's house still counts, for example.
All property in the bankruptcy estate is then taken by the bankruptcy trustee (except property that is considered exempt under applicable state law), and sold. Often in many states, your primary residence can be exempt (usually up to a certain dollar amount). There are time limitations (such that you own such exempt property a certain length of time before filing bankruptcy).
The proceeds of sale are then divided up for all of your creditors. Note that the law provides that the bankruptcy estate is made up of property you own as of the date on which the bankruptcy case is filed. Property or money that you become entitled to after the bankruptcy case is filed is generally not part of the bankruptcy estate, and cannot be taken from you. There are a few exceptions to the rule that property you acquire after filing bankruptcy is not part of the bankruptcy estate - namely inheritances.
There may be a way to structure a trust (such as an irrevocable trust, see below) to transfer certain assets to another person, but that will mean said other person (one that you hopefully trust completely) will have full control of the assets and you will have zero rights to it. There are also creditor protection trusts that you may be able to transfer assets into before you guaranty the loan. However, Lender's may require that the trust become a guarantor (especially if there is a significant amount of money in it).
An irrevocable trust can be beneficial in certain cases. Since you no longer control these assets, they will probably no longer be considered yours. They would therefore not typically be available to creditors. It’s important to note, however, that timing could play a factor. If you’ve transferred assets when you already owed money, the court could reverse the trust. This would put assets back into your ownership and creditors would then have access to them.
Note, fraudulent conveyance doctrines likely won't allow you to transfer assets to someone pre-bankruptcy, and then allow you such assets to be transferred back to you post-bankruptcy (especially if there is evidence of such plan) depending on when you make the transfer. Time will be your friend.
Finally, transfers of property generally have tax consequences. It is important to consider these consequences with a professional before any transfer is made.
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA