When you agree to become a guarantor, you put yourself at considerable risk. Here is a news item that appears in The New Straits Times today (17 Dec 2007) that highlights the danger of standing as a guarantor. You can read the article in full below but before you do, let me add my little comment.
It is very easy for the lady to say that you should say no to being a guarantor when you are asked by family members. Many times, it will be very difficult to turn them done. What if your little sister needs someone to guarantee her loan when she goes to university? So what should you do? Deny your sister of her education? So you see, it may not be so easy to say no.
My advice: do what you think is right. But when you do become someone’s guarantor, just make sure that you are on top of the situation. Monitor, monitor and don’t be afraid to step in if you feel uncomfortable. After all, it’s your money and reputation that are at stake if the loan turns bad.
Okay. Now you go ahead and read the news item:
Bankrupt guarantors come in all shapes and sizes – from as young as 18 to as old as 70 – and the Insolvency Department has seen them all.
One young man became a bankrupt at the age of 18 – because he acted as guarantor for his father’s loan. It took him many years to get out of bankruptcy.
“It happens quite often, though not always at such a young age,” said Insolvency Department director of Bankruptcy Division Lailawati Husain.
“Sometimes, parents put their children as directors of their company. The children act as corporate guarantors for loans taken by the company. And then, the company folds.”
Children, she says, are not the only corporate guarantor victims. Some retired civil servants are invited to be on the board of directors of a company and given fat salaries. In return, they have to be corporate guarantors for the company’s loans.
When the company is unable to settle the loan, the retired civil servant is left holding the baby.
“Some of them say they are only the guarantor, or they are only members of the board. But we don’t really look at the reason why they took out the loan. Once you have been declared a bankrupt, we have to administer you,” said Lailawati.
Some women have also had to swallow the bitter pill of bearing the burden of their husband’s failed ventures. “Wives act as guarantors for their husbands, or they provide property as security for their husband’s loan.
“When the husband can’t pay, the creditors go after the wife – or seize her property,” said Lailawati.
Some women have had the misfortune of being made bankrupt after their husbands have moved on to other relationships, leaving their wives or ex-wives with literally nothing but debts.