Can You Discharge a Personal Guarantee in Bankruptcy?

For the most part bankruptcy will discharge personal guarantees.  For those contemplating bankrupting personal guarantees, consideration is needed on the type of bankruptcy and the specific circumstances surrounding the guarantee.  Here is a general overview:

Chapter 7 bankruptcy which provides a discharge within 3-4 months

The individual debtor's personal liability  for debts can be discharged. This discharge typically includes personal guarantees.   Chapter 7 is a great option to deal with personal guarantees assuming the debtor is eligible.  Consult with a bankruptcy profession.  Eligibility considerations include assets, income and expenses.

Chapter 13 bankruptcy which provides a discharge once a chapter 13 plan is completed

If a debtor completes a Chapter 13 Plan then the court will issue a discharge.   The discharge will include personal guarantees.  Most Chapter 13 Plans only provide for a small percentage payback over a few years so that means that only a small percentage of the personal guarantee would have been paid back.   Note that the amount of the underlying debt for which the personal guarantee is tied to may impact the eligibility to file Chapter 13.  Chapter 13 has a debt limit that needs to be factored in.  Consult a bankruptcy professional to make sure Chapter 13 is an available option.

Chapter 11 bankruptcy for corporations do not discharge the  personal guarantees

The discharge of personal guarantees may depend on the restructuring plan approved by the court. It's important to note that while personal guarantees on unsecured debts may be dischargeable, there are exceptions. Certain types of debts, such as child support, alimony, certain taxes, and debts incurred through fraud, are generally not dischargeable in bankruptcy. Additionally, if the personal guarantee is associated with a secured debt (backed by collateral), the bankruptcy discharge may eliminate the personal liability, but the creditor may still have the right to repossess the collateral. Individuals considering bankruptcy and seeking to discharge personal guarantees should consult with a bankruptcy attorney. Bankruptcy laws can be complex and vary, and a legal professional can provide advice tailored to the specific situation, helping individuals understand their rights and obligations in the bankruptcy process. Each situation is unique.  For a personalized review of your situation, call David A. Arietta at (925) 472-8000.