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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91126
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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About 9 years ago, several friends of us started a company,

Customer Question

About 9 years ago, several friends of us started a company, I had 4% ownership of the company. We borrow an SBA loan from a bank. I was one of the guarantors of the loan about 17%. I had my car and my laptop computer as the collateral items for the loan.

I was not the owner manger of the company. During the years, I kept contribute to the company with hard work, and money earned from a different job. I didn't take any compensation because the owner manager said the company was in a hard time. As time goes by, I realized the owner manager had some critical financial management issue and I'd be drag down if I continue with the company. I have family and kids, and I am the owner income to support them. So I quit the company ownership and any activities about 5 years ago (2009).

From that point on, I didn't sign any documentation regarding this SBA loan, or join any decision the company made with this loan or other loans. Now the company is terminated and there is still $30,000 balance left on this SBA loan that I was on the guarantors list.

Now the bank sent letters to all of the guarantors to ask for the balance. Me and my wife's name are on this letter.

What is my situation here? How shall I act with this letter? What is the worst case or best case scenario? Shall I hire a lawyer or anybody that can help reduce the damage to my finance situation?

Thanks
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

If you were a guarantor on the loan and when you quit the company you never got removed as a guarantor or had someone substituted for you as guarantor, you remain liable for the guarantee on the loan I am afraid. This means that they can continue to pursue you along with the other guarantors on the loan even though you resigned your ownership interest in 2009.

There are some things that can be considered in these cases (and I'm not saying everything is right for you). First is trying to get those who remained in the company to pay up and settle the loan with the bank and give you a signed agreement that they will not hold you liable for payment on the loan. This agreement would be valid between you and the other guarantors only and would prevent them from later trying to sue you for contribution if they end up paying.

Second, you can negotiate a payoff with the lender for only your share and get a release from the bank for the balance of the loan.

Third, you can pay off the loan and sue the other guarantors/owners for "contribution" for what you had to pay the bank. This has a risk in that the other guarantors can file for bankruptcy and you could be then stuck bearing the whole burden.

Finally, you could consider filing for bankruptcy which would extinguish you and your wife's obligations for the loan.

If you do not resolve this, the bank can sue you jointly with the other owners or alone for the whole loan balance or any portion of the loan balance. If they get a judgment they could seize the collateral and could seek liens against you for any balance on the judgment, meaning they could seek to levy bank accounts and even try to garnish your wages.

Hiring an attorney would be most advisable here to negotiate a deal with the other owners/guarantors and also to negotiate a resolution with the bank to avoid you having to pay the whole loan or having to consider bankruptcy.



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Customer: replied 1 year ago.

Hi Paul,


 


Thanks for the answers! I might need a few more clarifications,


 


I remember when we sign the loan, the owner manager said she was the primary guarantor, meaning if others don't pay, she would be the final person that would be responsible for 100% of the loan. Is this correct? So if I don't act with this letter from the lender, the lender will not bother me again?


 


About the getting agreement from other guarantors, I am not sure if I can get the response from the other guarantors, because everyone probably is in a bad mood at the moment.


 


So that leaves me the choice of talking to the lender and tell them the situation, or hiring a lawyer to deal with the situation. What would be your suggest? Shall I talk to the lender first?


 


If I hire a lawyer, for this case, it involves $30,000, and my portion is 17% that is around $6000 (if they didn't change it behind me). Is it worthy to hire a lawyer, and normally what is the fee for the case like this?


 


If I file bankruptcy, what does that mean? I lost my car (it doesn't worth much)? Will the lender levy my other bank accounts and get the remaining balance (of my portion) from me?


 


Thanks for your answers in advance, I am very uneducated in these financial stuff. I realized I mistrusted some friends, and haven't done a lot to protect myself.

Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your reply.

1) The lender will not bother you only if she pays up. If she does not pay the loan, then you certainly will hear from the lender because they will pursue you and all of the guarantors.

2) You should talk to the lender first to see what they are willing to work out with you in exchange for giving you a written release from the loan first. If they do not want to negotiate you need to get a local attorney involved.

3) The amount they can come after you for depends on what the loan contract states. If they can only come after you for 17% and your only liability is $6000, then you need to evaluate whether you want to pay about $1000-$2000 to an attorney to work to resolve this for you. If the loan contract states they can come after you for more than 17%, then it becomes more worth it to you to hire local counsel.

4) If you file bankruptcy, likely you could protect your car and home, but any unsecured debts would be extinguished. You might lose your collateral to the bank, but they could not come after you for more than the collateral AND any amount over that collateral would be extinguished by the bankruptcy. Of course, with owing only $6000, if that is the amount you truly owe, this option is not likely to be viable, which as I told you in the beginning, not all of the recourses could be applicable to your situation.
Customer: replied 1 year ago.

thanks for the information,


 


I checked the original loan document, that they also put my wife's name and 17% on her. They I remember the lender told me that's the policy of the loan, in case I am not able to come up with the 17%, then my wife would be responsible. Does this mean 34%? oh no.

Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your response.

If they have both of you down together for 17% that should be 17% total.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 91126
Experience: All corporate law, including non-profits and charitable fraternal organizations.
Law Educator, Esq. and other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

thanks!


 


we are on different document. signed differently. oh well...

Customer: replied 1 year ago.

can I stay quiet and let the lender take my car and be done with it?

Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your response.

If you stay silent they can take your car and laptop and sue you for the difference of what you owe if there is a difference. It is usually best to get ahead of this.
Customer: replied 1 year ago.

ok, thanks Paul,


 


I'll find a local lawyer for this. Any suggestions you might have in Kansas City area?


 


Shall I talk to the lender or the lawyer?


 


thank you!

Expert:  Law Educator, Esq. replied 1 year ago.
Thank you for your response.

You would need to try the sites I listed above as the laws and site rules forbid us from making personal referrals.

You should talk to the lender's attorney first to see what deal they are willing to negotiate and then make your decision about hiring your own lawyer.

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