Personal Guarantees

What is a personal guarantee?

A personal guarantee is an agreement between one party and a lender that says if the person that borrows money can not pay the lender back, the guarantor will promise to pay the money back in their absence.

When do people sign personal guarantees?

Personal guarantees are usually offered when the lender is struggling to get the security that they need. This happens typically with business debts. In this event the Managing Director will borrow cash for the company, but because the company does not have adequate security to put the lenders mind at rest – the director is asked to sign a personal guarantee. The most common company which forces directors to sign personal guarantees is Funding Circle.

Can I put my personal guarantee into an IVA?

This depends on a number of factors, but generally speaking yes.

Can I put a business loan into an IVA?

If the business loan is on the basis of a sole trader, then yes.

If the loan is to to a Limited Company which is solvent, then no.

If the loan is to a Limited Company which is now closed or unable to pay (and the lender is trying to chase you under your personal guarantee responsibilities, then yes.

Is a personal guarantee legally binding?

Generally speaking, yes although there have been instances in the past where these have been challenged.

Should I allow a lender to put a charge on my property?

If your debt is an unsecured debt, such as a personal loan or credit card then there is no need to turn this unsecured debt into a secured debt. If you allow this, then your home will be at risk.

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