What Is a Personal Guarantee? Why They Can Take Your House

The story in the video

Between two holes of golf, our lawyer signs a personal guarantee on a napkin to help his company win a big supply deal. It feels like a formality. Then the company goes bust, the supplier calls in the guarantee — and his house leaves on a tow truck. Funny on screen, painful in real life.

How a personal guarantee works

Normally, a limited company is its own legal person. Its debts belong to the company, not to the people who own or run it. A personal guarantee changes that for one specific debt or contract.

• A company is its own legal person — its debts are not the owner's debts.
• A personal guarantee makes an individual personally responsible if the company fails to pay.
• If the company goes bust, the creditor may pursue the guarantor's personal assets — house, savings, car.
• In many countries, a guarantee must be in writing and signed to be valid.
• The wording decides everything: how much, for how long, and when the creditor can call it in.

Why limited liability doesn't protect you here

Limited liability is the reason people trade through a company: if the business fails, the owners lose what they invested, not their homes. A personal guarantee is a deliberate exception to that rule. By signing it, you agree to step outside the company's protection for that debt. Insolvency of the company does not end your obligation — in fact, it is usually the moment the guarantee is called.

Capped or unlimited? Read before you sign

Not all guarantees are equal. Before signing, check the points that decide how much you could lose.

• Cap: is your liability limited to a fixed amount, or unlimited?
• Scope: does it cover one contract, or all present and future debts of the company (a "continuing" or "all monies" guarantee)?
• Duration: does it end on a date, or continue until you formally terminate it — even after you leave the company?
• Co-guarantors: if several directors sign, can the creditor claim the full amount from any one of them?
• Order of claims: must the creditor pursue the company first, or can it come straight to you?

If any of these is unclear, ask for it in writing — and get advice before you sign.

Tips for creditors

For a supplier, a personal guarantee can be valuable protection when extending credit to a small or newly formed company with few assets. It gives you a second person to claim from if the company cannot pay.

• Ask for it before you extend credit, not after the invoices are overdue.
• Make sure it is in writing, signed, and meets the formal rules of the country whose law applies.
• Check that the guarantor actually has assets — a guarantee is only as good as the person behind it.
• Keep the guarantee up to date if the credit limit or the company's directors change.

How Collecty can help

When a company stops paying, Collecty pursues both the debtor company and, where a valid guarantee exists, the guarantor — locally, in 190 countries. No win, no fee.