Trade creditors extending credit to a financially distressed customer might seek a personal guaranty of a customer’s indebtedness— frequently from the customer’s principal. But what happens if a guarantor files for bankruptcy protection and obtains a discharge of his or her debts? Does a bankruptcy discharge extinguish a guarantor’s personal liability for the creditors’ post-petition (and post-discharge) extensions of credit to the customer?
The answer is yes, at least according to an August 2021 decision by the U.S. Bankruptcy Court for the Eastern District of Wisconsin (Bankruptcy Court) in Reinhart Food Service L.L.C. v. Schlundt (Reinhart). However, there are contrary court decisions that preserve the enforceability of a guaranty to debts arising post-bankruptcy.Click here to view the full article