The guarantor in the debtor's bankruptcy.

In a guaranty, the guarantor assumes an obligation in favor of a creditor to pay in the place of the principal in the event of default (conditional, secondary obligation). A guaranty is a separate contract from the contract by which the principal assumed the obligation in favor of the creditor, though dependent and accessorial to it.

Outside a bankruptcy event, the guarantor has the same defenses as the principal against the creditor. In case of payment to the creditor, the guarantor has the right to repeat against the principal.

But in the event of the principal's bankruptcy, the rights of the guarantor are impaired substantially.

The creditor can not demand payment to the guarantor if the obligation has not met its time of default. Upon adjudication in bankruptcy, the obligations subject to a term not due at the bankruptcy adjudication will be regarded as due. This anticipatory expiration of the debt takes force also vis-à-vis the guarantor; hence the creditor may demand payment to the guarantor upon the principal's adjudication in bankruptcy. However, the principal's forbearances in the reorganization plan do not benefit the guarantor. The same is true for the forgiveness of debt. Hence the creditor may request the guarantor the payment of the totality of the debt despite its reduction in favor of the principal according to the reorganization plan.[1]

It is still debatable whether the guarantor may repeat against the principal for the total amount paid to the creditor or only for the amount reduced by the reorganization plan.

For further information about bankruptcy law in Mexico, my work "Bankruptcy Law in Mexico", can be accessed at https://works.bepress.com/francisco-rodrigueznepote/4/, where it can be downloaded freely. A complete translation of the legal text can be found there, as well.


[1] Article 166.- Upon approving the plan, the bankruptcy proceeding will close and, consequently, said plan and the resolution that approves it, will constitute the only document that governs the Merchant’s obligations about the allowed claims.

All forbearances, discharges, remissions and any other benefit that said plan and the resolution that approves it establish for the Merchant would only be understood concerning the latter, and not concerning the joint and several obligors, guarantors, and other co-debtors, and cooperators of the Merchant, unless an allowed creditor expressly agrees.

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