Giving a guarantee may seem like a relatively low-risk undertaking, but there are serious risks attached, including the risk of personal bankruptcy, if the person whose debt you have guaranteed fails to make payment.
This unfortunate fate befell a man who acted as guarantor to a building society in respect of his brother’s mortgage loan. The wording of the guarantee (as is not uncommon) allowed the building society to make an immediate demand for payment of the sum guaranteed (which in this case was more than £1 million). It was not necessary for the building society to exhaust attempts to obtain payment from his brother before payment was sought from him.
In legal terms, because the guarantor’s obligation was ‘concurrent with’ that of his brother and not ‘contingent on’ it, he was a debtor and the building society was entitled to bring a petition for bankruptcy against him.
If a friend or relative asks you to act as guarantor for any transaction or debt, always take professional advice before agreeing.