Debt Counselling: Sanjay Agarwal

A few years ago, I became a guarantor for a friend who took an education loan. Unfortunately, he defaulted. The bank has now asked me to repay. I already have two loans (a car and a house) and cannot pay on my friend’s behalf. How do I get out of this? As a guarantor, can the bank report me as a defaulter to the credit bureau? Will it affect my credit history?
Being a guarantor is an act of responsibility to discharge the loan in case of a default by the borrower. Banks/financial institutions are within their right to demand the outstanding amount from the guarantor in case of a default. The guarantor has to either use his influence with the borrower to make him pay, or pay himself. As a principle, it is advisable to stand guarantee only for a loan where you are able and willing to pay in case of a default.

Borrower information available with credit bureaus contains details of the guarantor. Similarly, the guarantor’s account will also mention the cases where he has provided guarantee. To that extent, the credit history of the guarantor gets impacted. However, the decision to lend to the guarantor depends on the financial institution concerned.

I am working as a sales manager. My father died four months ago. He had an outstanding amount on his credit card. The issuer has started harassing my family to pay the debt. Is there any legal recourse for me? Also, my father had a small manufacturing business that I want to shut down. Will I be liable to pay dues related to the business? What is the best way forward?
It is always advisable to go through the terms and conditions of the agreement before applying for any financial product, loan, etc. Most card-issuing banks have a provision that, in the unfortunate event of the demise of the card holder, liability passes on to the successors, heirs or the ‘estate’ of the card holder. Hence, an outstanding amount has to be settled and paid. However, in such a case, banks are normally sympathetic while settling the dues. You should approach the concerned bank manager to arrive at a settlement amount.

Similarly, dues related to the business have to be settled and paid at the time of winding up the proceeds of liquidation. Exact liability depends on the constitution of the business (Ltd company/partnership/proprietorship), and terms and conditions of the loans availed.

The writer is senior vice-president and group head, retail (strategy and branding), Arcil. The counsellor’s views expressed here are his own. Send your queries to yourmoney@bsmail.in