Debts
What happens to business debts and personal guarantees in bankruptcy?
A personal guarantee is your own debt. Unless it falls under one of the exceptions the law lists, a Chapter 7 discharge covers it, and a Chapter 13 plan pays it alongside your other unsecured creditors. If your debts are mostly business debts rather than consumer debts, the Chapter 7 abuse rule, which is where the means test sits, does not apply to your case. Your discharge does not release the business or anyone else who signed.1 2 3 4 5 6
Connect to a bankruptcy lawyerIf you ran a business or signed for its loans, those debts follow you into a personal bankruptcy. Here is how Chapter 7 and Chapter 13 treat them, and who stays on the hook afterward.
General information, not legal advice. Rules and amounts change; check with a lawyer or the court before you act.
In this guide
What counts as business debt?
Bankruptcy law sorts debts by why you took them on. A consumer debt is one an individual incurred primarily for a personal, family or household purpose. Money borrowed to run a business, such as a loan for equipment, a supplier account or a commercial lease, was not taken on for that kind of purpose.7
A personal guarantee is a promise to pay the company's debt yourself. In bankruptcy, a debt includes a right to payment that is still contingent or disputed, so a guarantee belongs in your paperwork even if the lender has not yet asked you to pay. You must list every creditor.7 8 9
What happens to these debts in Chapter 7?
A Chapter 7 discharge covers the debts you owed before the case was filed, except the kinds the law lists as exceptions. A debt is not on that list just because it came from a business. Once it is discharged, the creditor may not try to collect it from you personally.1 2 5
The discharge ends your personal liability. It does not remove a lien. If you pledged your home or other property to back the guarantee, a valid lien that was not removed in the case stays on that property.10
| Debt | In Chapter 7 | In Chapter 13 |
|---|---|---|
| Business debt you owe personally, with no collateral1 2 6 11 | Discharged, unless an exception applies | Paid with other unsecured claims from your disposable income; the rest is discharged when the plan is completed |
| Personal guarantee of a company loan5 7 | Your liability is discharged; the company and any other guarantor still owe the debt | Treated as your unsecured debt in the plan; the company and any other guarantor still owe the debt |
| Guarantee backed by a lien on your property10 | Personal liability is discharged; a valid lien stays on the property | The lien stays unless it is removed in the case; ask a lawyer how the plan can treat it |
| Payroll or sales taxes you were required to withhold or collect12 9 11 13 6 | Not discharged | Not discharged; a priority claim the plan must pay in full |
Does the means test apply if most of your debt is business debt?
The means test is part of the rule that lets a court dismiss a Chapter 7 case as an abuse. That rule applies to a case filed by an individual whose debts are primarily consumer debts rather than business debts.3 4 14
The paperwork asks the question directly. Official Form 122A-1Supp, a supplement filed with the Chapter 7 income statement, starts by asking whether your debts are primarily consumer debts. A filer who answers no is told to check the box that says there is no presumption of abuse, sign and submit the supplement. The answer has to match the one on the petition.15
How a mixed set of debts is added up, for example a home mortgage next to a guaranteed business loan, is a legal question that can depend on your court. Work through the totals with a lawyer before you rely on this.
What happens in Chapter 13?
Chapter 13 has no separate rule for business debt. The plan does not have to pay unsecured claims in full, as long as you commit all of your projected disposable income for the plan period and unsecured creditors receive at least what they would get in a Chapter 7 liquidation. If you still operate a business, the amounts needed for ordinary operating expenses are left out of disposable income.6
Self-employed people and owners of unincorporated businesses can use Chapter 13 if their debts are under the limits: unsecured debts under $526,700 and secured debts under $1,580,125 for cases filed on or after April 1, 2025. A large guaranteed loan can push a filer over a limit, so check the figures with a lawyer.6 16
One Chapter 13 protection does not reach business debt. The codebtor stay, which stops creditors from pursuing a person who owes a debt with you, covers consumer debts only. A business partner or relative who also guaranteed the loan can still be pursued.17 6
Does your bankruptcy protect the business or other guarantors?
No. A discharge of your debt does not change what anyone else owes on it. The company stays liable, and so does any co-guarantor.5
It works the same way in reverse. If the company files its own Chapter 7 case, it does not receive a discharge, because in Chapter 7 a discharge is only for individuals. Your guarantee of its debts remains your personal debt.4 5
A corporation, partnership or LLC generally needs a lawyer to file its own case. Owners who want to keep a business running may consider Chapter 11, which is usually used to reorganize a business and has a streamlined form for small businesses.18 19 20 21 4
What can change the answer?
A few facts turn an ordinary business debt into one that is harder to deal with.
- Property is pledged. Liens are handled separately from personal liability.10
Common questions
Is a personal guarantee my debt even if the company is still paying?
Yes. A right to payment counts as a claim in bankruptcy even when it is contingent, so a guarantee that has not been called on is still a debt to list in your paperwork.7 8 9
If my debts are mostly business debts, do I skip the means test?
The Chapter 7 abuse rule applies to individuals whose debts are primarily consumer debts. A filer whose debts are not primarily consumer debts says so on the official supplement and checks the box for no presumption of abuse. Whether your debts qualify depends on the totals, so confirm it with a lawyer.3 4 15
Will my bankruptcy release my business partner who also signed?
No. Your discharge does not affect the liability of any other person or entity for the same debt.5
Sources
Official courts & government references- 11 U.S. Code § 727(b) (Cornell LII)
- 11 U.S. Code § 301(b) (Cornell LII)
- 11 U.S. Code § 707(b)(1) (Cornell LII)
- Chapter 7 - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 524(e) (Cornell LII)
- Chapter 13 - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 101(8) (Cornell LII)
- 11 U.S. Code § 521(a)(1) (Cornell LII)
- 11 U.S. Code § 523(a)(3) (Cornell LII)
- Discharge in Bankruptcy - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 1328(g)(1) (Cornell LII)
- 11 U.S. Code § 507(a)(8)(C) (Cornell LII)
- 11 U.S. Code § 1322(a)(2), (a)(4) (Cornell LII)
- Glossary of Legal Terms (uscourts.gov)
- Official Form 122A-1Supp, Statement of Exemption from Presumption of Abuse Under § 707(b)(2) (uscourts.gov)
- Federal Register, 90 FR 8941 (Feb. 4, 2025), Judicial Conference: Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
- 11 U.S. Code § 1301(a) (Cornell LII)
- U.S. Bankruptcy Court, C.D. Cal.: Attorney, Are All Debtors And Creditors Required To Have One?
- U.S. Bankruptcy Court, D.N.M.: Local Rule 1074-1
- Chapter 11 - Bankruptcy Basics (uscourts.gov)
- U.S. Trustee Program: Subchapter V
- 11 U.S. Code § 547(b) (Cornell LII)
- 11 U.S. Code § 550(a) (Cornell LII)