What you need to know as Guarantor of a Personal Guarantee

A Guarantees Acknowledgment Act Certificate must be completed with a lawyer in Alberta for a legally-enforceable personal guarantee.

Personal Guarantee & GAAC  |  Bank Loan  |  Financial Obligation  |  Commercial Lease  |  Car Loan  |  Student Loan

To schedule an appointment contact our law firm at Chris@NeufeldLegal.com or 403-400-4092

When you act as a guarantor for a personal guarantee, you are promising to be personally liable for the debt of the primary debtor (whether a corporation or another individual) if the primary debtor fails to pay its debt. This is a serious legal commitment that puts your own assets at risk.

As a guarantor, key responsibilities and risks that you need to be aware of include:

• You're on the hook: A personal guarantee is not just a formality. If the primary debtor (the borrower) defaults on the loan / financial obligation, the lender can legally come after you for the full amount of the debt, including any interest, penalties, and legal fees.

• Your personal assets are at risk: The lender can seize your personal assets to satisfy the debt. This can include your savings, investments, vehicle, and even your home.

• Impact on your credit: If the borrower defaults and you fail to make payments, the default will likely be reported to credit bureaus, severely damaging your personal credit score. This can make it difficult for you to get future loans, mortgages, or even credit cards.

• It's a separate legal agreement: Even if the borrower files for bankruptcy, your personal guarantee typically remains a valid and enforceable debt. The bankruptcy of the borrower does not discharge your obligation as a guarantor.

• Joint and several liability: If there are multiple guarantors, the guarantee may be "joint and several." This means the lender can pursue any one of the guarantors for the full amount of the debt, regardless of their ownership stake or the number of other guarantors. The lender will often go after the guarantor with the most assets.

As a guarantor, you need to take the time to properly understand the scope and breadth of what you are committing to by signing of on the personal guarantee (and accompanying guarantees acknowledgment act certificate):

• Understand the terms: Always read all the pertinent legal documents in their entirety and carefully (the financing documents, the personal guarantee, the Guarantees Acknowledgment Act Certificate). Know the exact amount you are guaranteeing, what assets are at risk, and under what conditions the lender can call on the guarantee (also consider requesting notification from the lender as to all consequential matters related to the primary debtor and the debt).

• Get legal advice: In Alberta, the Guarantees Acknowledgment Act requires that guarantors of loans and other financial obligation attain independent legal advice and complete a Guarantees Acknowledgment Act Certificate together with the lawyer. The lawyer should  be explaining the full scope and implications of the personal guarantee.

• Consider the primary debtor's financial situation: Although lenders seek personal personal guarantees where the primary debtor is a corporate entity (as well as from young adult children), when the principal individuals whose personal guarantees should be sufficient are in fact not sufficient, than the lender must necessarily be looking at them as high risk, such that you need to properly consider why they aren't sufficient and what their heightened risk represents.

When you are in need of legal representation with respect to the provision of a personal guarantee for another party's indebtedness (i.e., bank loan, debt financing, commercial lease, franchise, car loan, student loan), including the proper completion of a Guarantees Acknowledgment Act Certificate, contact Calgary personal guarantee lawyer Christopher Neufeld by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092..