Guarantor Loans

If you have a loan or finance agreement which someone guarantees for you (like an Amigo loan or car finance agreement) and you can’t afford to pay it, your guarantor will be contacted to make the repayments.

If you enter a DRO or IVA, or declare yourself bankrupt, your guaranteed debt will be included in the solution and you won’t be able to make any further payments to it. Your guarantor will then become liable for your repayments.

You can’t exclude a guarantor loan from your insolvency.

If your guarantor can’t afford to make payments, your lender can take further action against them to collect the debt.

If you have guaranteed a loan for someone else, your responsibility for the loan will depend on whether the borrower is still making repayments, or if you are. If you’re making repayments to it already, it will be included in your insolvency and you will be released from your liability to pay it.

If the borrower continues to make payments, the debt is not considered to be ‘due and payable’ by you, so won’t be included in a debt relief order or IVA. So, if at a later date, the borrower stops making payments, you won’t be protected from further action and will have to make an arrangement to pay it. It’s important to note that if you enter a DRO, your debt level must be below £20,000. If you become liable for a guarantor loan during the term of your DRO which takes you above this limit, your DRO could fail.

In bankruptcy, you would be released from any future liability for loans that you had guaranteed for others.

A guarantor loan is one where you borrow money on the condition that the lender has a personal guarantee, usually from a friend or family member, that they will make the repayments in the event that you can’t.

So, if you miss payments, they will contact your guarantor and ask them to make the repayments for you.

When you are the borrower
If you declare yourself bankrupt, your loan will not be written off with the rest of your debts. Your guarantor will remain liable for rest of the payments to your loan.

When you are the guarantor
The debt will be included in the bankruptcy, even if the borrower is still making the payments. Your liability for the payments (due now or at any point in the future) will end when your bankruptcy is approved.

When you are the borrower
If you enter an IVA, your loan will be included and will be paid dividends along with your other creditors. But because they won’t be receiving the full amount, they will still contact your guarantor to make payments.

When you are the guarantor
If you are a guarantor for someone else and you enter an IVA, the loan will be included in your list of creditors. If the borrower is still making payments, then the loan will continue as normal. If the borrower can’t make payments, you will be protected from creditor action by your IVA, but the loan company will receive some money towards the loan from the IVA, along with your other creditors. If the borrower defaulted on their payments after your IVA ended, you would still be liable.

When you are the borrower
If you enter into a DRO, your loan will be included and you won’t make any further payments to it. Your guarantor would become liable for the rest of the payments to your loan.

When you are the guarantor
If you are a guarantor for someone else and you enter a DRO, what happens next depends on whether the borrower is still making payments or not. If they have already defaulted and you are making payments, it will be included in your DRO and written off with the rest of your debts. If the borrower is still making payments, the debt won’t be included in your DRO so, if they later default on the payments, you would still have to pay the loan. If this new liability takes you above the £20,000 total debt limit for a DRO, the DRO could fail.

You can’t usually ask to be removed as guarantor for a loan, but there are some circumstances whereby you may have grounds to complain and ask the lender to consider this.

For example:

If the loan was not affordable
When the loan company agreed to lend the money, they should have checked that the repayments were affordable for both the borrower and you, as the guarantor.

These checks should have included asking you about your income (including getting proof, like a wage slip) and your regular spending like your mortgage, rent, household bills, food and travel. They should have also checked your credit file to see what other credit commitments you had and whether you were meeting the repayments to them.

They should have rechecked your affordability before any top-up loan was agreed to ensure that your situation had not worsened, and that you could afford the increased repayments.

If they didn’t carry out any checks to establish that you could afford the repayments, then you can complain and ask them to remove you as guarantor.