Guaranty Laws

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What Is a Guaranty?

A guaranty is an arrangement between a creditor and a debtor. The guarantor agrees to pay for the debtor's debts only if the debtor defaults and only after the creditor has unsuccessfully attempted to collect from the debtor. For example, assume someone wants a loan from the bank to open a business. The bank questions that business's ability to make money. In that situation, the bank would require a guarantor to sign the loan in case the debtor cannot pay.

What Legal Rights Do Guarantors Have?

Guarantors have several rights that extend beyond that of the debtor. These rights include:

What Defenses Do Guarantors Have for Not Paying off the Debt?

There are instances where a guarantor can be released from paying the debt. However, they must have a legally recognized defense. Some defenses include:

Should I Contact an Attorney if I Make a Guaranty Agreement?

Guarantor agreements are quite common in creditor-debtor transactions. However, the rights and defenses of a guarantor can be complex and confusing. For example, a surety is like a guarantor but they have completely different obligations. Consult an experienced business attorney to learn more about your guarantor agreement or to seek advice about whether to become a guarantor.

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Last Modified: 08-20-2014 02:26 PM PDT

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