If a borrower is discharged in Israeli insolvency proceedings, does the guarantor still have to pay?

Insolvency proceedings give an honest individual debtor a fresh start. They do not rewrite the obligations of third parties. A guarantee is a separate undertaking, given precisely for the case in which the borrower cannot pay. When the discharge order issues, the creditor's claim against the debtor ends, but the claim against the guarantor remains. Creditors therefore usually file a proof of debt in the debtor's case and pursue the guarantor in parallel, and whatever they receive from the distribution reduces what the guarantor owes. A guarantor who has paid, or expects to, can generally file their own proof of debt in the insolvency for the amount they could recover from the debtor, so that the right of recourse is not lost when the discharge comes.

Parents who guaranteed a child's loan, and business owners who guaranteed a company's credit line, are often surprised by this result. Once the borrower's case opens, the guarantor becomes the creditor's main target, and a stay of proceedings against the debtor does not automatically extend to the guarantor. A guarantor in this position benefits from a written statement of what the creditor has collected from the insolvency estate, a check of whether they qualify as a protected guarantor, and a review of whether the lender changed the loan terms without consent, which can release a guarantor on separate grounds. A guarantor who cannot pay may need their own arrangement. The guide to personal guarantors in Israel covers the full range of defenses.

From the full guide: Personal Guarantor in Israel: Obligations, Rights and Risks

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