Goodwill and trust in people we know often bring trouble — especially when we put pen to paper as a guarantor, whether for a loan, for employment, or for a car purchase. Often it ends with the real debtor disappearing into thin air, leaving the guarantor to bear the consequences. The good news is that the law is no longer as harsh on guarantors as it once was.
What does the new guarantor law protect?
The reformed guarantor law (in force since 2015) was amended to dismantle unfair contract terms. Under Section 681/1 of the Civil and Commercial Code, “any agreement making the guarantor liable in the same way as a co-debtor is void.” A creditor therefore can no longer immediately demand payment from, or seize the assets of, a guarantor.
What must the creditor do before suing the guarantor?
The creditor has a legal duty to trace assets and enforce against the principal debtor to the fullest extent first. In addition, if the debtor defaults, the creditor must send written notice to the guarantor within 60 days of the default. If the notice is late, the guarantor is immediately released from interest, penalties, and damages arising after that point.
What to do if you are sued as a guarantor
If you are being sued because you guaranteed someone else’s debt, do not give up and simply pay. Have a lawyer review the contract and assert your rights through the legal protections available to safeguard your assets.
