Jun 28

More on Personal Guarantees in Bankruptcy


The answer to the question as to when contingent liabilities become non contingent can be found in Fostvedt v. D. Dow (9th Cir 1987) 823 F2d 305.  There the court reiterated the rule that a contingent debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the creditor.  The court cited Brockenbourogh v. Commissioner, 61 B.R. 685, 686 (W.D. VA 1986) and All Media properties. Inc 5 B.R. 126, 133 (Bkr. SD. TX 1980) for further guidance.  In the guarantee situation the terms of the guarantee and state law define when the liability of the guarantor arises so it is kind of a moving target depending on the guarantee language and the state law that applies to interpretation of the language.  I imagine that the guarantees your client signed are pretty tight and liability will arise upon default of the underlying obligation.  Here in California the guarantees obtained by banks do not require notice of default or an effort to recover from the original borrower before the guarantor can be called upon to pay.

Your next question is interesting; what if the guarantee becomes non contingent after the petition is filed?  I feel confident in stating that if the contingency is satisfied prior to the claims bar date then the debt can be asserted.  I am going to go out on a limb here and argue that if the contingency is satisfied after the claims bar date passes that the lender is out of luck.  My belief coming from my gut without doing any research on the issue, is that there has to be a policy in place so that the estate can be efficiently administered.  There has to be a time when all the parties know how big a problem they are dealing with.  If new claims could be added throughout the term of the plan then there would be no feasible way to manage a plan, it would have to be continually modified and payments to creditors modified as well as pushing debtors out of eligibility for chapter 13 after everyone was supposed to know what the claims against the estate were supposed to be.

This blog simply contains my thoughts and ruminations on certain subjects.  They are thoughts in general and are not intended to be given or taken as legal advice.  If anything in this entry piques your interest or seems to apply to your situation please do not hesitate to comment on the post or contact us through our website at http://www.schinzelaw.com/ or directly by telephone at (760) 510-4900.

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