LAWLINK – Can I stop banks coming after my home after being a guarantor for my son?

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Q: My eldest child set up a business a few years ago. I have been involved in various businesses myself for a few years. He had a decent business plan but needed some capital to get up and running. We lent him some funds and he took out a sizable loan. He offered his home as collateral and my husband and I signed on as guarantors. Of course, then Covid hit. He tried his level best, but things have unfortunately progressed to the state where he is really left with no option but to shut up shop. He is pinned to his collar and is happy to let the house go or go bankrupt to help clear the debt. However, the bank is also going after us and threatening to sell our house also. What can we do?

Dear Reader,

The most important step is to keep in contact with your son’s bank. Unfortunately, if you signed a guarantee then you and your husband and your son are most likely ‘joint and severally liable’. This means that the bank can pursue your son or his home, or you or your husband personally, for all or some of the debt.

Naturally, the bank are not entitled to recover more than the sum that is due to them. You should have a clear idea as to what the exposure might be, there may well be the capital amount, interest, arrears, etc.

It sounds like your son has done everything possible to try and salvage matters, so he should have a clear idea as to the amount owed.

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You mention that he is happy to now effect the sale of his home to clear the debt. He should liaise with the bank to see whether accommodation can be reached in this regard. Often, banks would prefer to get a lump sum in the short to medium term and write off a certain sum of the balance, rather than try and pursue you and your son through the Courts over the longer term. They are under no obligation to do so, however.

That said, if your son were to go down the bankruptcy or insolvency route, this would not necessarily clear your obligation to the bank, as it would affect the indebtedness of your son only and not you or your husband, so the bankruptcy/insolvency route may not yield the results that you are looking for.

You mention that the bank has mentioned that your own home is at risk. You should check to ensure that your own home was not offered as security for the loan. If it was not, then the bank would need to first obtain judgement against you and thereafter seek to register that judgement as a mortgage as against your property.

You and your husband should consult your solicitor and your son should instruct his own separate solicitor. Your son seems like he is anxious to deal with matters in a genuine and honorable way, and all parties should liaise to ensure that the debt can be resolved in a timely manner.