What if a Personal Guarantor Isn’t Responding to Demand?
If a personal guarantor does not respond to the lender’s demand, the lender has two options to choose from in order to collect the debt. First, the lender can file suit against the personal guarantor and second – he can petition a court for the personal guarantor’s bankruptcy.
Before filing suit, the lender should investigate whether the personal guarantor possesses assets that could satisfy the debt owed to the lender. This would show if it is even worth filing a claim against the personal guarantor due to the high cost of legal fees and court proceedings.
How Can a Lender Enforce a Court’s Ruling Against the Personal Guarantor?
If the lender chooses to file suit, and subsequently a court judgment is entered against the personal guarantor, the winning lender becomes known as a “judgment creditor” and the losing personal guarantor becomes a “judgment debtor”. The judgment debtor will most likely have to disclose all of his assets to the court. The court could order the debtor to pay the entire sum owed to the judgment creditor in one installment or in multiple installments.
If the judgment creditor is unable to locate any properties or large bank accounts that the debtor owns, the judgment creditor can use wage garnishment to secure payment of the debt. Wage garnishment would oblige the debtor’s employer to subtract 25% of the debtor’s every paycheck until the debt is paid in full.
Can the Lender Petition for the Personal Guarantor’s Bankruptcy?
Another way of collecting a debt is to petition for “involuntary bankruptcy”. Involuntary bankruptcy is a process of creditors petitioning a court to commence proceedings of an individual’s bankruptcy against the individual’s wishes. The individual may, of course, file an objection to this process, and the court will make its determination in each individual case.
However, if the debtor files for bankruptcy or is forced to go through bankruptcy by his creditors, there is a high chance that the individual debt to the lender will be discharged, and so the lender will not receive any payment owed to him. Only some forms debts are not dischargeable, such as child support.
It is, therefore, crucial for a lender to weigh all of his options of collecting the debt owed to him before choosing a certain path.