The quiet risk in most closures is not the business debt — it is the personal guarantee behind it. This is the obligation that follows owners home, and it behaves very differently from the entity’s debts.
How big is the exposure
| Fact | Figure |
|---|---|
| Owners who signed a PG | ~50% (some data ~34% of small firms) |
| Who pledged their home | ~34% |
| Loans < $500K requiring a PG | Majority (often 90%+) |
Why it survives closing
- A PG is a personal contract between you and the lender/landlord. The entity closing does not terminate it.
- Entity bankruptcy discharges the company’s debt, not your guarantee.
- Only a personal bankruptcy (Chapter 7 or 13) can address it — and that has income, debt-limit, and asset tests of its own.
Contain it: before defaulting, ask for a payoff or partial release tied to an orderly handover. Negotiating from a position of a planned exit beats negotiating from a lawsuit. Size the total in the Personal Guarantee Exposure tool.
Sources: small-business lending surveys on personal guarantees, SBA and alternative-lender PG norms, bankruptcy-treatment-of-guarantees summaries. Retrieved 2026-08-13. Not legal advice.