What happens if you become a loan guarantor and the borrower runs away?

The issue of borrowers running away from paying loans to the extent that loan guarantors are subject to action is a common thing to hear.

Usually, a borrower or guarantor is an individual who knows the borrower personally, such as siblings, relatives and so on.

However, when the borrower intentionally fails to pay off the debt, it is often the guarantor who will face big problems when chased by debt collectors and may be subject to more severe action, causing the relationship between the borrower and the guarantor to become murky and messy.

Role and Responsibilities as Guarantor

Before diving into what happens if a borrower defaults, it’s important to understand the true scope of your role as a guarantor.

1. Guarantor: A person who agrees to be responsible for repaying the loan if the original borrower (principal) fails to fulfill his obligations. Your signature on the loan document is a pledge to the lender (bank or financial institution) that the debt will be settled, no matter what.
2. Types of Guarantees: There are two main types of guarantees:
   • Limited Guarantee: You guarantee only up to a certain amount or for a certain period only.
   • Full Guarantee (Unlimited Guarantee): You are responsible for the entire amount of the loan, including interest, legal fees, and other charges incurred until the debt is settled. Most personal and car loans use this type of guarantee.

By understanding this definition, it is clear that when the borrower runs away, the burden automatically shifts to the guarantor.

Financial and Legal Risks

Being a guarantor exposes you to a number of serious risks, especially when dealing with runaway borrowers.

In addition to the financial burden, the emotional stress experienced is enormous such as the feeling of betrayal, anger, and anxiety can affect mental health.

As mentioned, in a comprehensive guarantee, you can be held responsible for the entire loan balance, accrued interest, late payment charges, and legal costs and even these amounts can swell to be much higher than the original loan amount.

Next, the lender can sue you in court to obtain a money judgment.

If the court rules in their favor, the judgment will be recorded against your name. This can lead to:

• Bankruptcy Order: If the debt exceeds RM50,000 (year 2024) and you fail to pay, the lender can file a bankruptcy petition against you.
• Garnishee Order: The lender can apply for an order to withhold your wages or forcibly withdraw money from your bank account to settle the debt/

Related article: How to Claim a Debt in Court Without Appointing a Lawyer, Only a Small Cost

Solutions and Ways Out

For those who are already stuck in a situation where borrowers run away, there are still some solutions that can be considered.

Open communication with financial institutions is an important first step. Most banks are more willing to work with guarantors who are proactive in finding solutions than those who are evasive.

Some options include negotiating a more affordable repayment plan, settling the debt with a lump sum at a discounted value, or in certain cases, applying for a financial assistance program from a government agency such as AKPK.

While these options do not eliminate the guarantor’s responsibility, they can reduce the financial burden and provide some breathing room to better manage the situation.

In conclusion, when the borrower runs away, the guarantor becomes the most affected party.

Debt burdens, risk of lawsuits, damage to credit scores and emotional stress all result from borrowers failing to keep promises.

Therefore, before a person agrees to be a guarantor, they need to understand the overall risks and be prepared for the worst.

In the increasingly complex world of modern finance, the best course of action is to always be smart, be cautious and only make decisions after understanding the implications.