Most Minnesota business owners who end up personally on the hook for company debt didn’t get there through some 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 there was no deal without it.
In my practice it’s the most consequential document a small-business owner signs, and it’s the one they remember least. When a guarantor calls me, my first question is whether they have a copy. Too often the answer is no. So here’s what that document does.
A guaranty is a separate contract, and everything turns on that
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 doesn’t pay, you will.
That has two consequences, and both surprise people.
It survives the company. Dissolving the LLC doesn’t 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, too. A corporate bankruptcy discharges the company’s debts. It doesn’t discharge yours. Creditors routinely go after guarantors for exactly that reason: the entity’s bankruptcy cleared the field of other options.
Does it have to be in writing?
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’ll “stand behind” a company obligation is generally not enforceable as a guaranty. Don’t build a plan around that, though. In the files I see, the problem is almost never a missing writing. It’s a writing that says far more than the guarantor understood.
The words that decide the case
Guaranty fights turn on a handful of terms that show up again and again. Find them before you sign. If you’re already being sued, read them first.
| 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 most dangerous combination is “unconditional, continuing, joint and several, guaranty of payment, with waiver of defenses.” That’s standard commercial language. Here’s what it means: you owe the whole thing, right away, including obligations taken on later that nobody told you about, and you have almost nothing to say about it. It’s the entire downside of the deal squeezed onto one signature line.
Where guaranties surprise Minnesota owners
The company was sold and the guaranty wasn’t released. Buyers assume liabilities. Creditors don’t automatically release guarantors. Unless the creditor signs a release, the seller can stay on the hook for the obligations of a business they no longer own. Getting written releases is a closing item, and I see it missed constantly.
The loan was renewed, increased, or modified. A continuing guaranty with a notice waiver can stretch to cover the new facility. Owners find out the number grew years after they stopped paying attention.
A spouse signed. Sometimes because the lender asked, sometimes just because the form had two signature lines. It can expose assets the guarantor thought were insulated.
The lease was personally guaranteed and the business closed early. A commercial landlord’s claim against a guarantor for the rest of the term is among the largest personal exposures a small-business owner faces. And it shows up 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 gets 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 wasn’t can reduce or eliminate the deficiency.
The defenses that actually exist
Even against a well-drafted guaranty, real defenses come up. Whether any of them applies depends entirely on the facts. These are the categories I look at, roughly in the order I look at them:
- No writing, or the writing doesn’t cover this obligation. § 513.01, plus 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 allow 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. That’s exactly what the waiver clauses are drafted to defeat.
- The collateral disposition wasn’t 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 show up late.
- Fraud in the inducement, or a signature obtained when the document wasn’t what it was represented to be.
- Defects in the amount claimed. Often the most productive line: misapplied payments, unauthorized fees, compounding errors, and collection costs the contract doesn’t actually support.
What I tell owners before they sign
- Ask whether it’s required at all. For an established company with real financials, it’s sometimes negotiable, and asking 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’s no alternative.
- Keep a copy. An astonishing number of guarantors have never seen the document being enforced against them.
If you’re already being pursued
Get the actual documents first: the guaranty, the underlying note or lease, every modification, and the payment history. Those documents decide the case. In my experience the enforceability question often comes down to whether the obligation being claimed is one the guaranty actually reaches.
Then move quickly. Guaranty suits move fast, often on summary judgment, and creditors know guarantors under pressure settle. Two things improve a guarantor’s position: an early, accurate read of the document and a clear picture of what’s actually collectible. Both sides are negotiating against the same reality in the end.
At Madgett Law, LLC, I advise Minnesota business owners on guaranty exposure before they sign, on release provisions when a company is sold, and on defending guaranty and deficiency claims after a business fails. If a creditor is coming after 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.