People who have registered as guarantor on loans to people or businesses that later go bankrupt, can only be chased for the debt within two years, thanks to a Supreme Court judgement last week.
Guarantors can be in for harsh treatment, especially from the banks, but the new ruling means that if two years have passed since the bankruptcy, it will no longer be possible to chase the guarantor.
The Supreme Court ruled in the case last week, in a decision which mostly echoed what the Reykjavík District Court had also ruled.
The case had been brought by a pensioner of around 80-years-old, against Landsbankinn. The man had been guarantor on a ISK 5 million loan for his grandson. The grandson later went bankrupt and Landsbankinn started proceedings to recoup the money from the guarantors, which included the grandfather, some two years later.
This put severe financial strain on the grandfather, who could not pay, but was granted a new ISK 4 million loan by the bank, to pay back to the bank, RÚV reported.
The man decided to seek legal advice to try and get the loan written off, believing that a 2010 amendment to the bankruptcy laws, restricting the settlement process to two years, should apply to guarantors the same as it does to the original debtors.
Landsbankinn responded that if the law had meant to include guarantors in the two-year rule, it should have said so directly.
In the end, both courts came down on the side of the granddad, who has no training or experience in banking or law.