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    3 Replies Latest reply on Aug 11, 2008 6:55 PM by Lighthouse24

    Defaulting on my unsecured LOC

    GreenBuilder Newbie

      My business is failing with the downturn in residential real estate. I have a $20,000 unsecured line of credit with a large bank (not BofA) in the name of my business (a personal service corporation filing as an S-Corp). The line is maxed out.

      Do I have any personal liability for this loan? If I wanted to walk away from it, does my business need to decare bankruptcy?

      Any help or advice would be very much appreciated!

      Barely keeping my head above water.

        • Re: Defaulting on my unsecured LOC
          Worldwide Newbie
          If you are wanting to stay in business, one thing you might consider is bankruptcy protection. Give us a call we can discuss other options.
          • Re: Defaulting on my unsecured LOC
            Milleisen Scout
            The vast majority of business loans require a personal guaranty, which would mean that yes, you are accountable for that debt. The only way to know for sure is to review the loan documents and look for a document or clause within the loan agreement called "Personal Guaranty". Unsecured means that there is no collateral. If you were not personally liable, it would be called Non-Recourse. Non-recourse are rare and tend to be the exception for businesses with very strong cash flow.

            Walking away from $20K in debt does not seem like its worth ruining your credit. Besides that, if there is a charge-off on your credit report, any banks you try to lend from in the future will look at that VERY negatively because if a lender lost money on you once, what's to say you wouldn't do it again.
            • Re: Defaulting on my unsecured LOC
              Lighthouse24 Ranger
              To reinforce Milleisen's post above, you most likely had to guarantee that LOC personally, which would make you liable for the debt. With few exceptions, it would be best to approach the lender and explain the situation. Wanting to pay them back and intending to pay them back, yet not being able to right now due to business conditions, is a reality that major commercial lenders can work with (especially an amount like $20K). However, simply "walking away" from the obligation can have a much harsher and longer term set of consequences. I wouldn't do that.