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Bloomfield Office
Three Regency Drive
Bloomfield, CT 06002
Phone: (860) 242-2221
Fax: (860) 286-0185New Haven Office
1164 Townsend Avenue
2nd Floor
New Haven, CT 06512
Phone: (203) 468-4770
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PERSONAL GUARANTIES: MYTHS AND REALITIES 09-21-2006 A guaranty is a promise to answer for the debt or default of another person. Most guaranties arise in the following two situations: (1) when officers or owners of a small or new business are required to give a guaranty for payment of some debt or performance of some contract, and (2) when relatives and friends are asked to give a guaranty for an agreement or obligation entered into by another person with an insufficient or problematical credit history. At the outset, giving a guaranty may seem like a simple decision--you would enable your own business to secure the needed financing or agreement, or you would be doing a favor for a relative or a friend by “merely” signing a guaranty. However, a guaranty is a very serious undertaking on behalf of the guarantor because his or her personal assets and income are at stake in case the company defaults or a friend or relative can no longer make payments under the agreement. In case of such a default, the other party may bring one lawsuit claiming damages against both the main obligor and the guarantor. In this case, the main obligor’s and guarantor’s liability is joint and several. This means that all the parties will be liable if judgment is rendered for the plaintiff, and the plaintiff could pick and choose whom to recover from. Thus, not only would the guarantor have to defend the lawsuit and face a stigma and possible negative credit history consequences because of the judgment, but he or she would also be at risk of losing the most accessible personal assets, such as real estate and bank accounts, or having his or her wages garnished in order to satisfy the judgment. While the guarantor could always sue the business or a friend or relative on whose behalf the guaranty was given, if the other party has no assets or income, the guarantor would merely end up with a judgment that could not be collected. It is often hard to say no to friends and relatives who need your help or to your own business whose development you may otherwise be hindering, but committing your personal assets and income is a very serious undertaking. There may be alternatives to giving a guaranty, such as a higher interest rate loan or some other type of collateral. It may also be possible to give a guaranty which is limited as to the amount, specific asset of the guarantor or the number of years during which the guaranty is valid, or which requires the other party to first sue the obligor. Before putting your own assets at risk and signing something that may hurt you in the long run, it is very important to consult an attorney to determine all the obligations you will be undertaking and to explore alternatives to giving a guaranty.For more information, please contact Attorney Michael Hafkin.
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