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Understanding Suretyship and Guaranty: Key Differences and Legal Implications

In a suretyship or guaranty arrangement, a third party assumes responsibility for a debtor's obligations. A surety is primarily liable for the debt, even if the principal debtor defaults, while a guarantor is only secondarily liable, responsible only if the debtor fails to pay. For a guaranty to be enforceable, it typically must be in writing. This overview explores the roles of the principal debtor, creditor, surety, and guarantor, highlighting their legal standings and rights, particularly in the context of bankruptcy.

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Understanding Suretyship and Guaranty: Key Differences and Legal Implications

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  1. Suretyship and Guaranty Parties In a suretyship or guaranty arrangement, a third party promises to be responsible for a debtor’s obligations. A third party who agrees to be primarily liable for the debt (that is, liable even if the principal debtor does not default) is known as a surety; a third party who agrees to be secondarily liable for the debt (that is, liable only if the principal debtor defaults) is known as a guarantor. As noted in Chapter 12, normally a promise of guaranty (a collateral, or secondary, promise) must be in writing to be enforceable. Principal Debtor Creditor Guarantor (Secondary Liability to Creditor)Surety (Primary Liability to Creditor) Chapter 23

  2. Creditors’ Rights and Bankruptcy Chapter 23

  3. Creditors’ Rights and Bankruptcy (Continued) Chapter 23

  4. Creditors’ Rights and Bankruptcy (Continued) Chapter 23

  5. Creditors’ Rights and Bankruptcy (Continued) Chapter 23

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