Understanding sureties and joint liability

In short: A surety (guarantee) means answering for another person’s debts if they cannot pay. It is a far-reaching financial risk that is often underestimated.

In more detail: Sureties are often required for tenancies, loans or business start-ups.

In detail

• Default guarantee: The guarantor is only liable once all enforcement options against the main debtor are exhausted.
• Self-debtor guarantee: The creditor can turn to the guarantor immediately without pursuing the main debtor first.
• Maximum amount guarantee: Limits liability to a set amount.
• Written form requirement: A guarantee generally must be declared in writing to be valid.
• Realistic risk assessment: Only guarantee if the full sum would be affordable in a worst case.
• Joint liability in contracts: Those who sign a contract together often become jointly and severally liable independently of a guarantee.
• Alternatives: A deposit or a self-debtor bank guarantee can be alternatives to a personal guarantee (forderungsabtretung-und-zession).