Most Minnesota business owners who end up personally liable for company debt did not get there through an exotic legal doctrine. Nobody pierced their veil. Nobody proved fraud.
They signed a personal guaranty, usually years earlier, usually as one page in a stack, usually because the lender or landlord said the deal did not happen without it.
It is the most consequential document a small-business owner signs, and it is the one they remember least. Here is what it does.
What is a personal guaranty?
It is a separate contract in which you promise to pay someone else’s obligation. That framing carries the whole analysis.
Your company borrows the money. Your company signs the lease. Your company owes the supplier. The guaranty is a second, independent promise, made by you personally, that if the company does not pay, you will.
Two consequences follow immediately, and both surprise people:
It survives the company. Dissolving the LLC does not end it. Neither does the company’s insolvency, its winding up, or its disappearance. The guaranty is your contract, and it lives in your name.
It generally survives the company’s bankruptcy. A corporate bankruptcy discharges the company’s debts. It does not discharge yours. Creditors routinely pursue guarantors precisely because the entity’s bankruptcy cleared the field of other options.
Does a guaranty have to be in writing in Minnesota?
Yes. Minnesota’s statute of frauds, Minn. Stat. § 513.01, covers “every special promise to answer for the debt, default or doings of another.” Such a promise must be in writing and subscribed by the party to be charged, or no action may be brought on it.
So an oral assurance that you will “stand behind” a company obligation is generally not enforceable as a guaranty. Do not build a plan around that, though — the more common problem is not a missing writing. It is a writing that says far more than the guarantor understood.
The words that decide the case
Guaranty enforceability turns on a small number of recurring terms. These are the ones to find before you sign, and the first ones to read if you are already being sued.
| Term | What it means for you |
|---|---|
| Unconditional / absolute | The creditor need not do anything first — no default notice, no demand on the company, no attempt to collect from it |
| Continuing | Covers not just today’s obligation but future advances, renewals, modifications, and increases — often without notice to you |
| Joint and several | Each guarantor is liable for 100%, not a pro-rata share. The creditor may collect the entire debt from whichever guarantor is most collectible — which frequently means the one with a house |
| Guaranty of payment (vs. collection) | Payment: the creditor sues you immediately on default. Collection: it must generally exhaust remedies against the company first. Almost every commercial form is payment |
| Waiver of defenses | You give up defenses you would otherwise have — including some arising from the creditor’s own conduct |
| Waiver of notice | No notice of default, of modification, of extension, or of increased exposure |
| Waiver of subrogation | Limits your right to step into the creditor’s shoes against the company or your co-guarantors after you pay |
| Attorney fees | The creditor’s collection costs get added to what you owe |
| Confession of judgment | In some documents, an agreement that judgment may be entered against you. Treat any such clause as a stop-and-call-a-lawyer item |
The single most dangerous combination is “unconditional, continuing, joint and several, guaranty of payment, with waiver of defenses.” That is standard commercial language, and it means: you owe the whole thing, immediately, including obligations incurred later that nobody told you about, with almost nothing to say about it.
Where guaranties surprise Minnesota owners
The company was sold and the guaranty was not released. Buyers assume liabilities; creditors do not automatically release guarantors. Unless the creditor signs a release, the seller can remain on the hook for obligations of a business they no longer own. Getting written releases is a closing item, and it is missed constantly.
The loan was renewed, increased, or modified. A continuing guaranty with a notice waiver can extend to the new facility. Owners learn the number grew years after they stopped paying attention.
A spouse signed. Sometimes because the lender asked, sometimes because the form had two signature lines. It can expose assets the guarantor assumed were insulated.
The lease was personally guaranteed and the business closed early. Commercial landlord claims against guarantors for the remaining term are among the largest personal exposures small-business owners face, and they arrive after the business is already gone.
The deficiency after collateral is sold. When secured collateral is liquidated for less than the debt, the shortfall is the deficiency, and the guarantor is where the creditor looks for it. How that deficiency is calculated — and whether it can be pursued at all — depends on what kind of collateral it was. Minnesota limits deficiency judgments after mortgage foreclosure in ways that depend on how the foreclosure was conducted; the governing statute is Minn. Stat. § 582.30, and the analysis is property-specific. For personal-property collateral, Article 9 of the Uniform Commercial Code requires that a disposition be commercially reasonable, and a disposition that was not can reduce or eliminate the deficiency.
What defenses actually exist?
Even against a well-drafted guaranty, real defenses come up. Whether any applies is entirely fact-specific, but the categories worth investigating:
- No writing, or the writing does not cover this obligation. § 513.01, and the scope question — a guaranty of a 2019 equipment loan may not reach a 2024 line of credit.
- The guaranty was terminated. Many continuing guaranties permit written revocation as to future obligations. Whether notice was given, and when, can cut the exposure substantially.
- Material alteration of the underlying obligation. Under general suretyship principles a material change without consent can discharge a guarantor — though this is exactly what the waiver clauses are drafted to defeat.
- The collateral disposition was not commercially reasonable. A UCC Article 9 challenge to the sale process.
- Failure of a condition precedent the guaranty itself required.
- The creditor released the principal obligor or impaired collateral, depending on the waiver language.
- Statute of limitations. Contract claims expire, and guaranty claims often arrive late.
- Fraud in the inducement, or a signature obtained without the document being what it was represented to be.
- Defects in the amount claimed. Frequently the most productive line — misapplied payments, unauthorized fees, compounding errors, and collection costs the contract does not actually support.
Before you sign one
- Ask whether it is required at all. For an established company with real financials, it is sometimes negotiable, and the ask costs nothing.
- Cap it. A dollar limit, a percentage, or a defined obligation instead of “all present and future indebtedness.”
- Put a sunset on it. Termination after a stated period, a revenue threshold, or a number of on-time payments.
- Insist on notice provisions. Notice of default and of any modification, at minimum.
- Refuse joint-and-several where you can. Several liability limited to your ownership percentage is the fair version, and some creditors will take it.
- Preserve subrogation and contribution rights against the company and your co-guarantors.
- Keep the spouse off it unless there is no alternative.
- Keep a copy. An astonishing number of guarantors have never seen the document being enforced against them.
If you are already being pursued
Get the actual documents first — the guaranty, the underlying note or lease, every modification, and the payment history. The case is decided by those documents, and the enforceability question frequently turns on whether the obligation being claimed is one the guaranty actually reaches.
Then move quickly. Guaranty suits proceed fast, often on summary judgment, and creditors know that guarantors under pressure settle. The two things that improve a guarantor’s position are an early, accurate reading of the document and a clear picture of what is actually collectible — because both sides are ultimately negotiating against the same reality.
Madgett Law, LLC advises Minnesota business owners on guaranty exposure before signing, on release provisions in company sales, and on defending guaranty and deficiency claims after a business fails. If a creditor is pursuing you personally on a guaranty, send us a message or call 612-470-6529.
Sources: Minn. Stat. § 513.01 (statute of frauds; special promise to answer for the debt, default or doings of another); Minn. Stat. § 582.30 (deficiency judgments following mortgage foreclosure); Minn. Stat. ch. 336, Article 9 (Uniform Commercial Code, secured transactions, including the commercial-reasonableness requirement for dispositions of collateral) (Minnesota Office of the Revisor of Statutes); 11 U.S.C. § 524(e) (effect of a discharge on the liability of other entities). This article is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Whether a particular guaranty is enforceable, and what defenses exist, depends entirely on the documents and the facts. No outcome is promised or implied.