#11
Contracts & DealsHigh Risk
Someone asks you to personally guarantee a company's debt
Personal Guarantee Trap
Why It's Dangerous
A personal guarantee means you pledge your entire personal estate — real estate, savings, wages — as joint-and-several liability for a company's debt. If the company can't pay, creditors can pursue you directly. Many people sign guarantee agreements without understanding the consequences and end up shouldering enormous debts.
Typical Scenario
A client was asked to provide a personal joint-and-several guarantee for a transaction between companies. The counterparty company later became insolvent, and creditors sued the client personally, freezing their bank accounts and real estate. The client is still repaying a debt they never personally benefited from.
* This scenario is illustrative, based on common patterns observed in legal disputes.
What To Do
1
Never sign a personal guarantee unless you fully understand the consequences2
Consult an independent lawyer before signing to confirm the scope of risk3
Understand the difference between "joint-and-several liability" and a "general guarantee"4
If you've already signed a guarantee, pay attention to its term and any rights of recourseHave you experienced this?