Can You Discharge a Personal Guarantee in Bankruptcy?

In the context of bankruptcy, the discharge of a personal guarantee depends on the type of bankruptcy and the specific circumstances surrounding the guarantee. Here's a general overview:

In a Chapter 7 bankruptcy, which involves the liquidation of assets to pay off debts.

The individual debtor's personal liability for certain types of debts can be discharged. This discharge typically includes personal guarantees on unsecured debts, such as credit card debt or certain business loans.

In a Chapter 13 bankruptcy, which involves a repayment plan over several years.

The debtor may be able to discharge personal guarantees on certain debts after successfully completing the repayment plan.

If a business owner is involved in a Chapter 11 bankruptcy (typically for businesses), the discharge of personal guarantees can be more complex

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.