[lobrobster]

Hi,

A while back I was president of an Illinois sub-chapter 'S' corporation. A bank line of credit was extended to the company and this line was used to finance new projects. Unfortunately, the company ran into sudden financial harship due to being unable to collect several very large receivables (yada-yada), and as a result the company defaulted on this line of credit.

The corporation was simply dissolved by the state and never went into official bankruptcy proceedings. So here's my question:

I had signed the application papers for this line of credit and unbeknownst to me, I was personally guaranteeing this loan (it was in VERY small print on the documents I signed). However, every single place where my signature appears it is immediately followed by my title with the company. I feel this alone shows that I never intended to personally guarantee anything. However, whether that could hold up in court is another story. But here's a really interesting aspect of this story.

For years we had always made timely payments and were in good standing with this debt. During this time, the original bank which supplied this line of credit had been bought out by another bank and changed ownership. While the company was notified of this change in writing, I was never personally notified (I was an alleged guarantor and they had my personal address. So it's my understanding that they could've (should've?) sent such a notice).

It changed ownership another (and last) time when the debt was sold to another banking entity presumably for collection. Again, while the corporation received notice of this, nothing was ever sent to my personal residential address.

So now I am being personally sued for this debt. I guess my questions are:

1. What are the chances that a judge will find me liable for this debt?

2. Can the fact that my title always followed my signature on all loan applications and documents help me?

3(a). As a alleged guarantor of this loan, was I entitled to receive notice of change in ownership?

3(b). Having not received said notice, can this be grounds for dismissal?

4. The time between the last payment and actually being served the supboena was +5 years (longer than the statute of limitation, I believe). But the time between last payment and the filing for the supboena was 4 years and 9 months. Does this help me at all?

5. This is for a substantial amount of money. If a judge finds me liable, do I have a right to declare personally bankruptcy on this debt? (I heard that the personal bankruptcy laws changed for credit cards or something)

I'd really appreciate any insight on this. Thanks.

[excon]

Hello lob:

Sorry about your personal travails...

1. 80/20 (I'm not a mind reader, though).

2. Doubtful

3. Because the BANK changed owners?? Nahhh.

4. It certainly might. As a matter of fact, THAT may be your only defense.

5. You certainly can declare Bk. Yes, the laws DID change. It's just harder and more expensive to do. You know, Bush had to look out for his friends in the banking industry.

Given the above, before it gets REALLY expensive (as though it hasn't already), I'm sure they'll be amenable to an offer of settlement. Since this was a business line of credit, and since they have NO collateral, I'll bet they'll be willing to settle for, oh I don't know, maybe $.20 on the dollar - maybe less.

excon

[ScottGem]

1. I peg this as maybe a 10% chance you can get off. You didn't read the fine print and that's your responsible.

2. Less than doubtful

3. Not in the least. A guarantor is a secondary debtor. The guarantor is only contacted in case of default.

4. This may be your only defense. However, it depends on when legal action was first taken to recover the debt. Even though you as guarantor weren't sued within the SOL, if legal action was insitageted to recover the debt at any point to any entity within the SOL then its valid. SOL issues can be tricky, especially with commercial debt. So you should consult an attorney on this.

5. Yes, this will now be a personal debt. The problem here is I'm not sure whether you can charge off a judgement.

[lobrobster]

Thanks for taking the time to reply.

3. Not in the least. A guarantor is a secondary debtor. The guarantor is only contacted in case of default.

Right. But the loan DID go into default and I still wasn't personally or properly notified. So if I co-sign a loan for you and you default, don't I have a right to be notified of default before I get sued? It seems I should.

4. This may be your only defense. However, it depends on when legal action was first taken to recover the debt. Even though you as guarantor weren't sued within the SOL, if legal action was insitageted to recover the debt at any point to any entity within the SOL then its valid. SOL issues can be tricky, especially with commercial debt. So you should consult an attorney on this.

Well I actually have consulted an attorney on this and wanted to get more opinions. He thinks that since they *entered* the service before the 5 year SOL was up, they are OK. Even though I wasn't physically served until well after the SOL had expired.

Ironically, he seems to think I've got a good shot at a favorable outcome because they violated the law of guarantors (my #3). We'll see. I just wanted to get some other opinions. I was hoping everyone would say, "don't worry!" -lol. I guess I'm in for a rough ride.

[ScottGem]

Right. But the loan DID go into default and I still wasn't personally notified. So if I co-sign a loan for you and you default, don't I have a right to be notified of default before I get sued? It seems I should.

I don't think so. The notice of suit could be your first notice. You can then enter into a payment agreement. While it does make sense to try and contact the guarantor before it gets too far in arrears, I don't believe it's a requirement.

Well I actually have consulted an attorney on this and wanted to get more opinions. He thinks that since they *entered* the service before the 5 year SOL was up, they are ok. Even though I wasn't physically served until well after the SOL had expired.

I agree, as long as the suit was filed within the SOL, its valid.

Ironically, he seems to think I've got a good shot at a favorable outcome because they violated the law of guarantors (#3). We'll see. I just wanted to get some other opinions. I was hoping everyone would, "don't worry!" -lol. I guess I'm in for a rough ride on this one.

I'd have to see the wording of the statute he's hanging his case on, but I'm skeptical.

[lobrobster]

Thanks for your response excon. Just to be sure though...

3. Because the BANK changed owners???? Nahhh.

I'm just curious if you're speaking from any type of experience on this. Although I don't think my attorney has found an actual example of any case law yet, he seems reasonably confident that THIS is my only shot! In my state (Illinois), a creditor must notify all guarantors of any changes of ownership or term agreements.

[ScottGem]

No, I'm not speaking from a specific experience or knowledge. And I was looking at it from a different angle. If there is a statute that requires that a guarantor must be notified if the owner of the debt changes, that could very well be an out. Of course, they could say they sent the info to the last known address.

But I was looking on it as to them being required to inform you of a default, not a change in ownership.

[excon]

In my state (Illinois), a creditor must notify all guarantors of any changes of ownership or term agreements.

Hello again, lob:

Nahh, fortunately, I've never been sued by a bank. It would seem to me that if the TERMS changed, they'd have to notify everybody involved. But, just to tell them the address changed where to send the payment wouldn't be a requirement.

But, you're attorney must certainly know more than me. I'm just guessing half the time anyway.

excon

[lobrobster]

Of course, they could say they sent the info to the last known address.

Thanks Scott. One last question...

I thought of this too. I mean, what's to prevent them from saying they did send such notice? I mean, it's my word Vs. their's. They could even produce some *fake* document if they wanted to I guess. But...

My attorney has been handling this for over a year now and he has explained our position to them. They never denied their failure to send such a notice. Can they all of a sudden do so in court?

Lastly, what do you make of the fact that this loan was defaulted on over 6 years ago (when last payment was made), and it is just now going to court? Like I said... The amount of money is substantial by almost any means (it's in the 6 figures). If someone owed me that kind of money and I thought I had a case, I would've been in court years ago trying to collect it!

It seems they have just finally found a collection attorney who has nothing better to do but go to court and give it a shot. And even now, it's not like their trying that hard. This is at least the 3rd collection firm and they've been on this for over a year now. It just doesn't make much sense to me. But then, I don't claim to understand how big business works.

[ScottGem]

What's substantial to you may be just a drop in the bucket to the bank. But what I suspect happened here is the bank figured with the company defunct it wouldn't collect anything. So they charged it off and decided to sell it to a collection agency who noticed there was a guarantor and went after you.