Japanese banks have a tradition of taking personal guarantees for corporate loans from the businessmen as well as their families. For instance, I was personally on the hook for millions of dollars at one of my first companies, Digital Garage, until we secured enough outside financing to pay off our debt, which in Japan is often the only financing available to new companies.
The Japan Times reports that this is a significant cause for the high suicide rate in Japan that I often write about. There are over 30,000 suicides a year in Japan, mostly be older men. It is more than three times the number of annual traffic accident deaths. The article describes people whose businesses go bankrupt or are unable to pay their debts and how this destroys the lives of loved ones and friends around them as banks run to collect from the guarantors. The people commit suicide in shame. Also, most people in Japan buy life insurance to cover most of their outstanding loans. The suicide, if executed properly will relieve these unintentional victims of the burden of paying off liabilities.
I have personal guarantees on many loans and have actually had to cover several payments for friends and others that have defaulted on their loans. The fact that it is such common practice in Japan makes it a real sleeping problem that faces society here as the economy continues to get worse. Another big problem with these guarantees is that they are difficult to assess and make quantifying default risk for banks difficult. Credit assessments for individuals who are exposed to such guarantees is also very difficult.