Obtaining a personal guaranty from a customer’s owner or principal can be a very powerful collection tool for trade creditors looking to backstop obligations owed by the customer. However, a personal guaranty is only as good as the person who provides it. In some instances, a personal guarantor may face financial distress that ultimately causes the guarantor to file for bankruptcy.
Courts have reached different conclusions as to the impact of a personal guarantor’s discharge on future liability under a guaranty. In Reinhart Food Service L.L.C. v. Schlundt, the United States Bankruptcy Court for the Eastern District of Wisconsin (the “Bankruptcy Court”) held that a personal guarantor’s bankruptcy discharges not only claims under the guaranty that existed on the date of the guarantor’s bankruptcy filing, but also future claims that may arise under the guaranty after the bankruptcy filing. The Bankruptcy Court largely relied on precedent it believed had been established by the United States Court of Appeals for the Seventh Circuit (the “Seventh Circuit”).Click here to view the full article