Personal Guarantee

[jonpaul42]

What is the name of your state? New York

Our corporation requires new customers (businesses, not individuals) to sign a credit application that includes a personal guarantee. The credit app also includes provisions that the customer agrees to pay a fee of 25% of the unpaid principal if the account is put out for collection and that the agreement shall be governed by NY State law and jurisdiction.

For the first time, we have a customer who is not paying a legitimate invoice. We have sent them a final notice with a deadline to pay or we will move on the personal guarantee. If they do not pay, what is the proper procedure to act on the personal guarantee?

[Debt Guy]

what is the proper procedure to act on the personal guarantee?

The first thing to consider is whether it is worth pursuit. Just because you have a guarantee does not insure that you can collect money.

You have a couple of choices. You can turn the account over to a collection agency or you can have your attorney file a lawsuit. Depending on the amount, you might be able to file a small claims lawsuit and handle it in-house.

You did not say where the client resides. Generally, you must sue in the county in which the debtor lives. There can be some situations where another jurisdiction is appropriate depending on the exact terms of the guaranty and state law.

I do not know if your "penalty" clause is enforceable. State law will determine. Just becuase you wrote it into the agreement does not make it enforceable.

Talk to your attorney.