Understanding personal guarantee debt in Northern Ireland

If a bank calls in a personal guarantee, this could leave you facing a considerable debt which you may not have the ability to repay. When it comes to personal guarantee debt, taking action at an early stage is key to negotiating a successful outcome with your creditor.

Personal guarantees are often given in the context of a business loan. When a company director is looking to obtain funding for their limited company, they may find lenders are unwilling to loan any money unless the director first signs a personal guarantee.

A personal guarantee acts as a form of security to the bank in the event of the borrowing company being unable to keep up with the repayments on the loan. This could be due to cash flow issues meaning the contractual monthly repayments are not made in full and/or on time, or due to the company becoming insolvent and entering into liquidation.

Should the borrowing company be unable to repay the personally guaranteed loan, the bank will then look to the individual who provided the personal guarantee – which is typically the company director – for full repayment of the outstanding balance.

When a personal guarantee is called in due to numerous defaults or the liquidation of the borrowing company, the responsibility for repaying the amount remaining on the loan will pass to the guarantor.

Unfortunately, business debt often goes hand in hand with personal debt problems as directors often inject any spare personal capital into the company in an effort to sustain it.

This often means that when a lender turns to the director for repayment of a personally guaranteed loan, there is simply not enough money available to allow for this to be done.

In this instance, your first port of call should be the bank or loan company as there may be a way for you to negotiate repayment directly with the lender. The success of this will depend on a number of factors including your relationship with the lender and your ability to repay the amount outstanding. If you are unable to negotiate an affordable repayment plan, you may need to consider entering into a formal insolvency solution to deal with the debt.

Debt which has arisen from a personally guaranteed business loan, will be treated in exactly the same way as any other personal debt you owe.

This means that you can include the personal guarantee debt – along with other debts you may have such as credit cards and overdrafts – in a formal debt repayment solution such as an Individual Voluntary Arrangement (IVA).

An IVA would give you the opportunity to make monthly repayments towards the personal guarantee debt for five years, with any unaffordable amount being written off as part of the process. Depending on your assets, you may be asked to release some of the equity tied up in your home or extend the term of the IVA by a further 12 months. You appointed insolvency practitioner will be able to explain whether this may be relevant in your situation before you go ahead with the IVA.

As a team of licensed insolvency practitioners, we are perfectly placed to help you when it comes to debt which has arisen from a called in personally guaranteed loan. Your dedicated adviser will take the time to understand your situation before talking you through your options which may include an IVA.

Take the first step towards tackling your debts today by contacting the team at Northern Ireland Debt Solutions.