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Brent Blanchard
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1905
Experience:  Twelve years experience in all aspects of debtor & creditor BK.
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My wife and I own a business (S-Corp). We have a loan that

Resolved Question:

My wife and I own a business (S-Corp). We have a loan that is partially secured with the equity in our home as collateral. We have a mortgage on our home. Our business is suffering. My question is if the corp files bankruptcy can we keep our home? My guess is that we'll also have to file personal bankruptcy too.
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  Brent Blanchard replied 4 years ago.
Oh, the joys and perils and pitfalls of securing a business with personal assets,Customer And the banks so often won't make the loan without the personal guarantee or pledge of personal assets.

With all this protection, why was a bank bailout even needed? But I digress...

Yes, it is very, very routine for a creditor to go after anyone else left "financially standing" after a business fails. Discharge of a debt by one party to the contract in BK releases only the person, not the LIEN on the property, even if it becomes property of the BK estate. Creditors can go after the property, and since a BK discharge is only between the Debtor and the Creditor, there is nothing to keep the lender from going after everyone else who is named on the loan as a source of payment.

If the home is too upside-down with the first mortgage, a disappointed creditor might not bother to try to foreclose on what is functionally a secured loan that is really under-secured and un-secured because there's not enough equity value left in it. Just don't count on that. The second-position lender in such a situation would wind up owning a big monthly payment and a zero-net-value house that *might* increase in value someday.

So, yes, it is pretty common for a business owner to need to file a personal BK to keep the business creditors from exercising their rights under the personal guaranty on the business loan. Such, in fact, was my first BK case when I left a firm to start my own practice.

Thank you.

BB.
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1905
Experience: Twelve years experience in all aspects of debtor & creditor BK.
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