§ 6-7. Reduction and lapse of liability under a personal guarantee

This section explains how the liability under a personal guarantee is reduced, and when it lapses entirely. If the borrower pays interest, instalments or other amounts to the lender, the liability under the personal guarantee is reduced to the extent the personal guarantee covers what has been paid. In addition, the liability shrinks as if the loan had been repaid according to plan, even if the borrower has not paid. If the lender has granted a deferral of payment, the liability is reduced six months after the original due date, unless the guarantor has expressly agreed to the extension that the deferral entails.

The duty to give notice is directly relevant here. If the lender can show that notice of default was sent in time under § 6-3, the liability is not reduced for that default. If the notice comes too late, the liability is reduced for payments that fell due more than three months before the notice was sent. Under § 6-3, the notice must be given in writing no later than three months after the default occurred, but it can be omitted in the case of temporary default.

A personal guarantee does not last forever. The period of liability is ten years from when the agreement was entered into. For overdraft facilities, other credit lines and loans without an agreed repayment date, the limit is five years. If the borrower has defaulted before the period runs out, and notice was sent in time, the liability does not lapse. These limitations do not apply to realkausjon (collateral provided by a third party).

The section has several related provisions in the chapter. § 6-8 on debt insurance reduces the liability as if the borrower had paid themselves. § 6-11 links the interest claim against the guarantor to whether the notice came in time. § 6-13 on the guarantor's claim against the borrower refers to this section.

Example: The lender grants the borrower a deferral of payment without asking the guarantor. Six months after the original payment date, the liability under the personal guarantee is reduced, unless the guarantor has expressly consented.