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.