🤝 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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