The Personal Guarantee Problem
Almost every MCA agreement includes a personal guarantee. When you signed, you made yourself personally liable for the full amount. This means the funder can pursue your personal bank accounts, real estate, vehicles, and other property. The personal guarantee bridges your business debt to your personal life.
What Assets Are at Risk
If a funder obtains a judgment on your personal guarantee, they can potentially reach personal bank accounts and investments, real estate including your home in some states, vehicles, stocks, bonds, and financial instruments. However, every state has exemption laws protecting certain property from creditors. In New York, your primary residence has a homestead exemption. Retirement accounts are generally protected. Necessary personal property and tools of your trade may be exempt.
Strategies to Protect Your Assets
Challenge the Personal Guarantee
Guarantees can sometimes be challenged if obtained through fraud or misrepresentation, signed under duress, or if the underlying MCA is void due to usury or unconscionability.
Negotiate the Release
In settlement negotiations, the release of the personal guarantee is a critical term. Experienced attorneys negotiate for a full release as part of any settlement. Once the settlement is paid, the funder cannot pursue you personally.
Use Entity Protection
If your business is an LLC or corporation, the entity provides protection for assets not covered by the guarantee. But only if you have maintained proper corporate formalities and not commingled personal and business funds.
Claim Exemptions
If a judgment is entered, file exemption claims promptly for all protected property. Do not assume the funder or court will identify your exemptions.
What Not to Do
- Do not transfer assets to family or friends. Fraudulent conveyances can be reversed and create additional liability.
- Do not hide assets. Post-judgment discovery is thorough and hiding assets is illegal.
- Do not wait until a judgment is entered. Asset protection planning is most effective before litigation begins.