In one sentence
A check for bankruptcy filings by the borrower, guarantor, or related parties, a basic credit and legal diligence step.
The longer version
Bankruptcy searches confirm the parties are not in or recently out of bankruptcy, which would fundamentally change the risk and the structure. It is a routine but non-negotiable diligence item.
A hit here can stop a deal or force major restructuring, so it is checked early rather than discovered late.
Common questions
- What is a bankruptcy search?
- A check of federal bankruptcy court records for filings by the borrower, guarantors or related parties.
- Why does a bankruptcy search matter?
- Because a prior or pending bankruptcy affects credit and legal risk, and an automatic stay can limit a lender's remedies against a party in bankruptcy.
- Who is searched?
- Typically the borrower, guarantors and key principals, and sometimes affiliated entities, depending on the lender's policy.
Keep reading
- The due diligence checklist, built to be runChecklists as systems, not documents.
- The commercial loan closing checklistWhat goes on the list and who owns each line.
- The commercial loan closing processThe five stages from term sheet to funded.
- Commercial loan softwareWhere this sits in the lending stack.