Personal Guarantor Demand Letters
🤝 Personal Guarantor Demand Letters
Collecting from Guarantors When Borrowers Default
⚖️ What Is a Personal Guaranty?
A personal guaranty is a contract in which one person (the guarantor) promises to pay another person’s debt if the primary obligor defaults.
Types of Guaranties
| Type | Scope | Example |
|---|---|---|
| Payment Guaranty | Guarantor pays immediately upon borrower’s default | “I guarantee payment of all amounts due under this loan” |
| Collection Guaranty | Guarantor only liable after lender exhausts remedies against borrower | “I guarantee collection only after lender pursues all remedies against borrower” |
| Continuing Guaranty | Covers all present and future obligations | “I guarantee all amounts now or hereafter owing” |
| Limited Guaranty | Capped by dollar amount, time, or specific transaction | “I guarantee up to $50,000” or “I guarantee only Invoice #12345” |
Why Guaranties Are Used
- Weak borrower credit: Startup with no credit history backed by owner’s personal guarantee
- Entity shield piercing: Lender wants recourse beyond LLC/corporation
- Additional security: Real estate investor guarantees company’s construction loan
- Lease guaranties: Landlord requires owner to guarantee business tenant’s rent
Common Guaranty Waivers
Most guaranties include waivers of common defenses:
- Waiver of notice of default: Lender need not notify guarantor that borrower defaulted
- Waiver of demand on borrower first: Lender can sue guarantor directly without suing borrower
- Waiver of suretyship defenses: Modifications to underlying loan don’t release guarantor
- Waiver of jury trial: Disputes resolved by judge, not jury
📋 Reviewing the Guaranty Before Demanding Payment
Before sending a demand to a guarantor, carefully review the guaranty document to understand its scope and requirements.
Key Questions to Answer
| Question | Why It Matters |
|---|---|
| Is it a payment or collection guaranty? | Collection guaranty requires you to exhaust remedies against borrower first |
| Is it continuing or limited? | Determines which obligations are covered |
| Are there dollar caps? | Guarantor may only be liable up to a specified amount |
| Are there notice requirements? | Some guaranties require formal notice of default to guarantor |
| What defenses were waived? | Determines what arguments guarantor can raise |
| Did guarantor sign properly? | Signature issues can void the entire guaranty |
Signature and Capacity Issues
Verify that the guarantor:
- Signed the guaranty personally (not in a representative capacity)
- Had legal capacity to sign (age, mental competence)
- Signed voluntarily without fraud or duress
- If married, check if spouse’s signature was required (community property states)
Representative Signature Problem: If John Smith signed “John Smith, President of ABC Corp,” he may have signed as a representative of the company, not as a personal guarantor. The signature block should read “John Smith, Individually” or “John Smith, as Guarantor.”
Modification Issues
If the underlying loan/obligation has been modified since the guaranty was signed, check whether:
- The guaranty includes a waiver of suretyship defenses (most do)
- The modification was material and prejudicial to the guarantor
- The guarantor consented to the modification
Without a waiver, material modifications (increasing the loan amount, extending maturity, raising interest rate) may release the guarantor.
✍️ Demand Strategy for Guarantors
When to Pursue the Guarantor
- Primary obligor is insolvent: Borrower has no assets or income to pay
- Primary obligor is judgment-proof: Wage garnishment/asset levy would be futile
- Primary obligor has disappeared: Can’t locate the borrower for service of process
- Guarantor has deeper pockets: Guarantor has more assets/income than borrower
- Guarantor is motivated to protect reputation: High-net-worth guarantor wants to avoid litigation
Demand Letter Timing
Option 1: Simultaneous Demand
- Send demand to borrower and guarantor at the same time
- Pro: Maximizes pressure; one may pay to avoid the other’s liability
- Con: May signal desperation; gives guarantor time to challenge the guaranty
Option 2: Sequential Demand
- Demand from borrower first; if no payment, then demand from guarantor
- Pro: Preserves relationship with guarantor; shows good faith
- Con: Delays collection; gives borrower time to dissipate assets
Settlement Leverage with Guarantors
Guarantors often settle quickly to avoid:
- Damage to personal credit
- Litigation costs
- Embarrassment (especially if guarantor is a business owner or executive)
- Impact on other guaranteed obligations (cross-default provisions)
Settlement strategies:
- Offer to release guarantor for lump sum (less than full balance)
- Accept payment plan with personal asset collateral
- Release guarantor in exchange for third-party payment (friend/family pays guarantor’s liability)
📄 Sample Guarantor Demand Letters
Sample 1: Payment Guaranty Demand
[Lender Letterhead]
[Date]
[Guarantor Name]
[Address]
SENT VIA CERTIFIED MAIL
Re: Demand Under Personal Guaranty
Borrower: [Borrower Name]
Loan Date: [Date]
Guaranty Date: [Date]
Amount Due: $[Amount]
Dear [Guarantor Name]:
This letter is formal demand for payment under your Personal Guaranty dated [date].
BACKGROUND:
On [date], [Borrower Name] executed a [Promissory Note/Loan Agreement/Lease] in the original principal amount of $[amount]. You executed a Personal Guaranty of all amounts owing under that obligation.
DEFAULT:
[Borrower Name] has defaulted by [describe default: failing to make payment due on X date, breaching covenant, etc.]. The borrower is now [X days/months] in default.
AMOUNT DUE FROM GUARANTOR:
Pursuant to your Personal Guaranty, you are personally liable for:
Principal balance: $[amount]
Accrued interest: $[amount]
Late charges: $[amount]
Attorney fees: $[amount] (per Guaranty Section [X])
TOTAL AMOUNT DUE: $[Amount]
DEMAND FOR PAYMENT:
Pursuant to the Guaranty, you agreed to pay all amounts due upon default. We demand payment in full of $[amount] by [date – 15 days from letter date].
GUARANTY PROVISIONS:
Your Guaranty includes the following provisions that apply to this demand:
• You waived notice of default and demand upon the borrower (Section [X])
• You agreed we may pursue you directly without first pursuing the borrower (Section [X])
• You waived defenses based on modifications to the underlying obligation (Section [X])
• You agreed to pay our attorney fees in collecting this guaranty (Section [X])
CONSEQUENCES:
If payment is not received by [deadline], we will file suit against you for:
• The full amount due under the Guaranty
• Continuing interest at [X]% per [period]
• Reasonable attorney fees and costs
• Judgment lien on your real and personal property
We prefer to resolve this without litigation. Please contact me immediately to arrange payment or discuss settlement options.
Payment should be sent to:
[Payment address/wire instructions]
Sincerely,
[Signature]
[Name]
[Title]
Enclosures: Copy of Guaranty, Copy of Note/Loan Agreement, Account Statement
Sample 2: Collection Guaranty (After Pursuing Borrower)
[Lender Letterhead]
[Date]
[Guarantor Name]
[Address]
SENT VIA CERTIFIED MAIL
Re: Demand Under Collection Guaranty
Borrower: [Borrower Name]
Judgment Amount: $[Amount]
Dear [Guarantor Name]:
As guarantor of [Borrower Name]’s obligations, you are now liable for payment under your Collection Guaranty dated [date].
COLLECTION EFFORTS AGAINST BORROWER:
We have exhausted all reasonable collection remedies against [Borrower Name]:
• Obtained judgment on [date] for $[amount]
• Attempted wage garnishment – employer states borrower no longer employed
• Conducted asset examination – borrower disclosed no non-exempt assets
• Attempted bank levy – account contains insufficient funds
Despite these efforts, we have collected only $[amount if any] of the [total amount] judgment.
LIABILITY UNDER COLLECTION GUARANTY:
Your Collection Guaranty provides that you are liable for amounts due after we exhaust collection efforts against the borrower. We have met that condition.
AMOUNT DUE:
Remaining judgment balance: $[amount]
Post-judgment interest: $[amount]
Collection costs: $[amount]
TOTAL DUE FROM GUARANTOR: $[Amount]
DEMAND:
We demand payment in full by [date]. Payment should be sent to [address/instructions].
If we do not receive payment, we will pursue all available remedies against you, including judgment enforcement, wage garnishment, and asset levy.
Sincerely,
[Signature]
[Name]
🛡️ Guarantor Defenses
If you’ve received a demand under a guaranty you signed, you may have defenses:
Common Defenses
| Defense | When It Applies |
|---|---|
| No valid guaranty | Signature was forged, you lacked capacity, or you signed in representative capacity only |
| Guaranty not triggered | Borrower hasn’t actually defaulted, or lender hasn’t met conditions (collection guaranty not yet enforceable) |
| Material modification | Lender modified underlying obligation without your consent in a way that prejudices you (and guaranty lacks waiver) |
| Lender released collateral | Lender released security without your consent, impairing your subrogation rights |
| Fraud/duress | You were fraudulently induced to sign or signed under duress |
| Statute of limitations | Action on guaranty is time-barred (typically same SOL as underlying obligation) |
| Payment/accord | Debt was already paid or settled |
Waiver Problem
Most guaranties include broad waivers that eliminate traditional suretyship defenses. If you signed a guaranty with language like:
“Guarantor waives all suretyship defenses and agrees that Lender may modify the underlying obligation without notice to or consent from Guarantor”
…you’ve likely waived most defenses except fraud, forgery, lack of capacity, and statute of limitations.
For Guarantors: If you receive a demand under a guaranty, consult an attorney immediately. Even if defenses are limited, settlement negotiations may reduce your liability significantly.
💼 How I Help with Guarantor Disputes
For Creditors/Lenders:
- Review guaranties to confirm enforceability
- Draft demand letters to guarantors
- Negotiate settlements with guarantors
- File lawsuits to enforce guaranties
- Obtain judgments and levy on guarantor assets
For Guarantors:
- Review guaranty for defenses and ambiguities
- Negotiate reduction or release from guaranty
- Defend against guaranty enforcement lawsuits
- Assert counterclaims for lender misconduct
- Structure bankruptcy protection if necessary
Guaranty Enforcement or Defense
Whether you’re enforcing a guaranty or defending against one, I can help protect your interests.
Email owner@terms.law
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