Contingent Liability | Propertylogy

Contingent Liability

By on December 6, 2018

Contingent liability describes liability that is not currently in effect, but potentially active (or triggered) in the future due to the occurrence of certain events.

An individual with contingent liability would be free of any obligations now, but being tied to certain contracts directly or indirectly, he might be liable in some way in future.

One of the most common contingent liability is being a guarantor for a loan borrowed by someone else.

For example, youngsters taking up student loans seldom have an income source to qualify for a loan or to meet certain requirements. So they pull in guarantors for the loan. While they are the legal borrowers of the debt and liable to repay it, defaults will mean that lenders could hold the guarantor liable for it.

Other types of contingent liability include things like pending adverse judgments in litigation, tax potential liabilities, personal guarantees, etc.

Lenders often look into details of potential future liabilities of borrowers before deciding whether the risks with lending are too great to take on.

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