"Be a guarantor, you just sign, it costs nothing." — one of the most dangerous phrases you can hear. Guaranty costs nothing... until the day it costs everything.
If you're deciding whether to sign as a guarantor — read this before putting pen to paper.
What guaranty actually is
A guaranty (or suretyship) is a contract by which you commit to paying someone else's debt if that someone doesn't pay. Seems simple. But the details are where the danger lies.
When you sign as a guarantor, you're not saying "I'll help if I can." You're saying: "if the principal debtor doesn't pay, I pay — in full, just like them, with the same obligations."
What obligations you're taking on
Guaranty binds you to:
- The principal amount — the debtor's entire debt
- Interest — including penalty interest for delay
- Recovery costs — court fees, attorney fees, bailiff commissions
- Any penalty clauses from the main contract
Meaning: if the debtor owes 100,000 MDL and doesn't pay, with interest and costs you could owe 130,000 MDL or more. All of this money can be recovered from you.
How the creditor enforces against you
The creditor doesn't have to try the principal debtor first. If the guaranty is joint and several (and most are), the creditor can come directly to you, without pursuing the debtor.
Procedure:
- Debtor doesn't pay at maturity
- Creditor sends you a demand, as guarantor
- If you don't pay — court and enforcement against you
- Bailiff garnishes your salary, accounts, assets
Yes, seizes your personal assets — not the debtor's. Your house, your car, your account. That's the reality of guaranty.
Risks no one explains
1. Total financial risk
You can lose amounts far greater than you expect. The debt grows with interest, penalties, costs. You're liable for all of it.
2. Enforcement risk
Your personal assets can be seized. Your salary can be garnished. Your bank accounts frozen. It's not a theoretical possibility — it happens.
3. Impact on your credit
Guaranty appears on credit reports. If the principal debtor is late, your credit suffers, even if you did nothing wrong. You can be refused for your own loans.
4. Long-term risk
Guaranty doesn't expire after a year or two. It's valid until the debt is fully extinguished — which can take 5, 10, 15 years. Meanwhile, the debtor can disappear, enter insolvency, or refuse to pay.
5. Personal conflict risk
If you sign for a friend or family member and they don't pay — you're held liable. The relationship sours. You pay their debt. And, technically, you have the right to claim the money back — but if they couldn't pay the bank, they won't be able to pay you either.
When it (maybe) makes sense to sign
Honestly: most guaranties are not worth signing. But there are rare cases:
- For your adult child who needs a mortgage — and you have full confidence in their ability to pay
- For your own company — where you're the effective beneficiary of the loan
- When the amount is small and you can absorb it financially without serious consequences
In all other cases — friends, acquaintances, business partners — too much risk, zero benefit for you.
Questions you MUST ask before signing
- What's the exact total debt? (including interest, penalties, costs)
- How long does the guaranty last? (fixed term or indefinite?)
- Is it simple or joint and several? (joint = can enforce directly against you)
- What's the debtor's financial situation? (stable income, payment history?)
- Can you financially absorb this debt if the debtor doesn't pay?
- What happens if the debtor dies, enters insolvency, or disappears?
If you can't clearly answer all — don't sign.
How to protect yourself if you do sign
If you decide to sign (though, honestly, we don't recommend it), take protective measures:
- Request a counter-guarantee — the debtor gives you a guarantee (asset, mortgage) you can enforce if you have to pay
- Limit the amount — don't guarantee "all present and future obligations," but a specific sum
- Set a term — guaranty until a clear date, not indefinite
- Require notification — so the creditor notifies you immediately when the debtor is late, not after 6 months
- Document everything — keep copies of the main contract, the debtor's payments, any correspondence
If you're already a guarantor and the debtor doesn't pay
If you signed and are now being held liable — don't pay blindly. Check:
- Is the guaranty valid? (expired? modified without your consent?)
- Did the creditor follow the notification procedure?
- Is the amount claimed correct? (including correctly calculated interest)
A lawyer can analyze these aspects. Sometimes, the guaranty can be challenged on procedural grounds.
And if you pay — you have a right of recourse against the principal debtor. You can recover what you paid. But, again, if the debtor couldn't pay the bank, they won't be able to pay you.
Conclusion
Guaranty isn't a harmless signature. It's a major financial commitment with real risks and long-term consequences. If you're not willing to pay the entire debt with your own money — don't sign. Simple.
If you've already signed and have problems — contact us. We'll evaluate the situation and advise you honestly.