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Phillips Esq.
Phillips Esq., Attorney-at-Law
Category: Bankruptcy Law
Satisfied Customers: 17476
Experience:  B.A.; M.B.A.; J.D.
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I signed a personal guarantee when my business was a sole

Customer Question

I signed a personal guarantee when my business was a sole proprietorship with several vendors, but then we incorporated a few years later and the vendors updated our account to the new corporate name in their system. Our business is at risk of failing
now. Is there a chance that the personal guarantees would not carry over since they were against the debts and name of the original company, and the invoices and debts now are against a corporation for which the vendors never received a new guarantee? Also,
I am looking at selling parts of my business to pay off debts (like divisions) Online / Retail / Emboidery, etc. My reading of bankruptcy law is that as long as we don't pay insiders (i.e. us or family) with the proceeds, the transactions and payments to people
we owe can't be rolled back if we don't file bankruptcy for 90 days after. Does that sound right? I want to make sure whoever buys these divisions is protected, and that the payments we make with the proceeds are left in place.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Phillips Esq. replied 1 year ago.
Hello: This is PhillipsEsq. I am a licensed Attorney and I will be assisting you today.
I signed a personal guarantee when my business was a sole proprietorship with several vendors, but then we incorporated a few years later and the vendors updated our account to the new corporate name in their system. Our business is at risk of failing
now. Is there a chance that the personal guarantees would not carry over since they were against the debts and name of the original company, and the invoices and debts now are against a corporation for which the vendors never received a new guarantee? Also,
I am looking at selling parts of my business to pay off debts (like divisions) Online / Retail / Emboidery, etc. My reading of bankruptcy law is that as long as we don't pay insiders (i.e. us or family) with the proceeds, the transactions and payments to people
we owe can't be rolled back if we don't file bankruptcy for 90 days after. Does that sound right? I want to make sure whoever buys these divisions is protected, and that the payments we make with the proceeds are left in place.

Response: Yes, that sounds right. However, you need to carefully review 11 U.S.C. Section 547(c) to make sure that your payments do fall under exception to preferences and you would not have problems with the bankruptcy trustee:
https://www.law.cornell.edu/uscode/text/11/547
Customer: replied 1 year ago.
Thank you for your answer. I see you answered my second part of the question. Do you have an opinion on whether personal guarantees signed as a sole proprietor are likely to hold up when we incorporated several years later (and 5 years ago), and the vendors started addressing us and doing business with us as a corporation? All invoices owed would be against our corporate entity, and my guarantee would date back 10 years and be against our sole proprietorship. So I want to see if there is a chance they would not hold up against the corporations debts.
Expert:  Phillips Esq. replied 1 year ago.
Thank you for your answer. I see you answered my second part of the question. Do you have an opinion on whether personal guarantees signed as a sole proprietor are likely to hold up when we incorporated several years later (and 5 years ago), and the vendors started addressing us and doing business with us as a corporation? All invoices owed would be against our corporate entity, and my guarantee would date back 10 years and be against our sole proprietorship. So I want to see if there is a chance they would not hold up against the corporations debts.
Response: Personal Guarantees remain in place until modified in writing by the parties to the agreement. Personal Guarantees will still hold up—are still valid regardless of change in ownership.

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