Question 1

What is a personal guarantee?

Accepted Answer

A personal guarantee is a legal commitment by an individual to be personally responsible for a business obligation. In Florida: personal guarantees are commonly required for: commercial leases (the landlord requires the business owner to personally guarantee the lease payments), business loans (the lender requires the owner to personally guarantee the loan), and vendor accounts (suppliers require the business owner to guarantee payment). The guarantee makes the individual personally liable: if the business defaults, the creditor can pursue the guarantor’s personal assets (bank accounts, real property, and other personal property).

Question 2

What are the risks of signing a personal guarantee?

Accepted Answer

Risks: unlimited liability (unless the guarantee is capped, the guarantor is liable for the full amount of the obligation, including: principal, interest, attorney fees, and costs), personal asset exposure (the creditor can pursue: the guarantor’s bank accounts, investments, real property, and personal property; subject to Florida’s exemptions), credit impact (a default on a guaranteed obligation affects the guarantor’s personal credit), and survivability (the guarantee may survive the guarantor’s death, becoming a claim against the estate). The guarantor should: limit the guarantee amount if possible, negotiate a sunset provision (the guarantee terminates after a specified period), and negotiate a "good-guy" guarantee (liability limited to the period of occupancy).

Question 3

Can a personal guarantee be enforced against a guarantor’s homestead?

Accepted Answer

Homestead protection: in Florida, the homestead is protected from most creditor claims (Article X, Section 4 of the Florida Constitution). However: a personal guarantee does NOT create a lien on the homestead (it is an unsecured obligation), the creditor cannot force the sale of the homestead to satisfy the guarantee, BUT: the creditor can obtain a judgment and pursue other personal assets, and if the guarantor voluntarily sells the homestead, the judgment lien may attach to the proceeds (depending on whether the proceeds are reinvested in a new homestead within a reasonable time).

Personal Guarantee

Personal Guarantees in Florida

Common Uses

Risks

Homestead

Related Terms

Barnes Walker Business Law

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