How Do I File for Bankruptcy? 7 Steps for a Business Owner With Personal Guarantees

The owner who signed personal guaranties files bankruptcy as a person, and the company that took the money watches from outside the case. Much of what goes wrong in an owner's filing begins with forgetting that separation, or with remembering it after the forms are already signed.

The steps below assume an individual whose exposure runs through guaranties of company debt (merchant cash advances, a bank line, an equipment lease) and who is weighing a personal petition. They follow the order in which the law asks for things, which is not always the order in which an anxious owner wants to do them.

1. Settle Whose Petition This Is

A guaranty makes the owner a separate obligor on the company's debt, and the company stays liable on the contract it signed. A personal petition addresses the owner's liability. The automatic stay runs in favor of the debtor; in a 2003 decision, Queenie v. Nygard, the Second Circuit repeated the settled rule that a section 362(a) stay is limited to debtors and does not reach co-defendants who have not filed. The principle runs in both directions: the owner's filing leaves the LLC exposed, and an LLC's filing leaves the owner exposed.

The forms reflect the split. The federal judiciary's page on filing without an attorney sends individuals to the 100 series of official forms and corporations, partnerships and LLCs to the 200 series, and it adds that sole proprietors use the 100 series. An individual may file without a lawyer, though the same page says counsel is "strongly recommended." A company has no such choice; since Rowland v. California Men's Colony, the rule that an entity appears in federal court only through licensed counsel has been treated as long settled.

2. Take the Counseling Briefing Before the Filing Date

Section 109(h)(1) bars an individual from being a debtor unless, within the 180 days before the petition, the individual received a budget and credit counseling briefing from an approved nonprofit agency. The briefing may be individual or group, and it may be conducted by telephone or online. The United States Trustee Program maintains the list of approved agencies and warns that a case filed without the briefing "could be dismissed."

A second course, on personal financial management, comes after filing, and section 727(a)(11) withholds a Chapter 7 discharge from a debtor who fails to complete it, subject to stated exceptions. The first certificate is a single page. It belongs in the file before the petition does.

3. Sort the Debts Before Anyone Mentions the Means Test

The means test reaches only an individual "whose debts are primarily consumer debts," under 11 U.S.C. 707(b)(1), and section 101(8) defines consumer debt as debt incurred "primarily for a personal, family, or household purpose." Guaranties of company financing were generally signed for a business purpose. An owner whose largest obligations are those guaranties may therefore stand outside the test altogether, although no one should promise that result before the schedules exist.

The sorting sounds clerical until it meets a real household. A second mortgage drawn to cover payroll in a bad quarter, a personal card that carried inventory for a season, a car titled to the owner and used for deliveries: each debt carries its purpose with it, and the purpose was fixed when the money was borrowed, not when the owner decided to file. The classification, in other words, depends on why the money was borrowed, which makes the owner's memory of a decision taken years earlier a form of evidence, and makes the old bank statements that confirm it more valuable than any recollection.

4. Choose the Chapter With the Guaranty Totals in Hand

Chapter 7 liquidates nonexempt property through a trustee and, for an individual, ends in a discharge unless an exception applies. Chapter 13 repays creditors over three to five years, and it admits only individuals whose noncontingent, liquidated debts fall under $526,700 unsecured and under $1,580,125 secured (as adjusted April 1, 2025). An owner engaged in business may also look at Subchapter V of Chapter 11, open to debtors with no more than $3,424,000 in qualifying debts. A bill to restore higher ceilings cleared the Senate in August 2026 and the House in September 2026 in differing versions and was not law on September 27, 2026, so counsel should confirm the limits in force on the filing date.

Guaranties are what push owners past these lines. You add up what you signed for, and then you find out which doors are still open. Whether a particular guaranty counts as contingent or liquidated on the petition date is a legal question, and a disputed one goes to the court.

5. Claim What the Exemption Statute Allows

Section 522(b)(1) lets an individual debtor exempt property under either the federal list in section 522(d) or the alternative set drawn from state and other federal law, unless the applicable state law does not authorize the federal list. Which set applies, and what each protects, depends on where the owner has lived.

The company has no exemptions of its own. Its property was never the owner's to protect.

6. Schedule the Business Interest as Property

Under section 541(a)(1), the filing creates an estate made up of "all legal or equitable interests of the debtor in property as of the commencement of the case." The company's bank account is not the owner's property. The owner's membership interest in the company is.

That stake resembles the brass ticket handed over at a hotel luggage room: the ticket belongs to the guest, the suitcases sit behind a counter the guest cannot walk around, and on the petition date the trustee holds the ticket. What the ticket will fetch, whether anyone would buy a share of an LLC that owes several funders, and what the operating agreement says about transfers are questions the trustee will ask and counsel will answer.

Within 14 days after the petition, unless the court extends the time, the owner must file schedules of assets and liabilities, income and expenditures, and a statement of financial affairs. The owner's interest in the company goes on those schedules, along with money the company owes the owner, equipment titled in the owner's name but used by the company, and the guaranties themselves, each listed at the balance the creditor claims.

Transfers between owner and company deserve their own inventory. Under section 548, a trustee may avoid transfers made within two years before the filing with intent to hinder, delay or defraud creditors, or for less than reasonably equivalent value while insolvent. An owner who moved a truck into the LLC for nothing eighteen months ago has put that transfer on the trustee's desk. So has the owner who drew the LLC's last funds into a personal account the week before filing.

7. Prepare for the Trustee's Questions About the Company

The meeting of creditors is falls, under Rule 2003, somewhere between day 21 and day 40 after relief is ordered in a Chapter 7 case, and between day 21 and day 50 in Chapter 13. The United States trustee presides, and the meeting includes an examination of the debtor under oath. For an owner, much of that examination concerns a company that is not in the case: who signed the advances, what the bank statements show, whether distributions continued after the defaults, and whether the business still operates.

Section 521(a)(3) obliges the debtor to cooperate with the trustee, and 18 U.S.C. 152 makes a knowing and fraudulent false oath in a bankruptcy case a crime punishable by up to five years in prison.

But the sixty days after the first date set for that meeting belong to the creditors. A funder that believes the owner obtained money through a materially false written statement about financial condition, relied upon and made with intent to deceive, may file a complaint under section 523(a)(2)(B) within that window, which Rule 4007(c) fixes at 60 days after the first date set for the meeting. Whether a revenue figure a broker typed into an application counts as the owner's own written statement is a question the statute leaves to the facts, and to the court that hears them.

Before the Petition Is Signed

Delancey Street, not a law firm, works on the company's side of this problem: it negotiates advance balances and other business debt outside court, offers a first review at no cost and in confidence, and sends legal questions to counsel licensed independently of it. It does not prepare petitions or advise an owner whether to file. An owner already facing judgment enforcement, or carrying guaranties larger than any negotiation could address, belongs with bankruptcy counsel first. Where the company's debts might be resolved by agreement, Delancey Street can price that route, and counsel should review any payment made in the ninety days before a later filing.

A personal filing reorders one person's obligations. The company, and whoever still answers its phone, remains where it was.