What Happens If A Borrower Defaults On A Loan You're A Guarantor For

A lawyer's advice on the gravity of being a guarantor.

By Samuel Seow, managing director of Samuel Seow Law Corporation

Being a guarantor is a very serious commitment, and it not only entails paying of the debt of the borrower if he is unable to repay it himself, but also being responsible for the further charges, legal costs and interests when there is delay in payment."

If you are one of several guarantors, and you have agreed to be “jointly and severally liable”, the lender can claim the full sum of the debt from you alone.

Unfortunately, unless you can prove that the loan agreement is invalid (for example, elements of a contract are not made out/contract is illegal/contract is made under duress/there was fraud), you will be liable for the sum you guaranteed.

If you cannot settle the debt and the amount owed is more than S$10,000, you may be subject to bankruptcy proceedings and thus may become a bankrupt. The lender’s rights take priority over yours and you can only take action against the borrower once the lender has recovered all the debts owing to him.

In essence, it is very important to consider whether you are able to afford and whether you are willing to repay someone else’s debt, and to assess carefully the borrower’s ability to pay back his debt, before deciding to be a guarantor for someone.

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