Small business owners oftentimes sign personal guaranties while in business.When the business goes south the small business owner is contemplating filing for bankruptcy protection, the question becomes whether the personal guaranties can be wiped out in the Chapter 7 case.
Recently in Jeffrey and Martha Lipa, herein after Lipa, 20 CBN 1143 (Bankr.E.D. Mich. 2010) the court shed some light on this issue. In this case the Chapter 7 debtors had received their discharge in 2005. In 1997, while still in business, the husband had executed a personal guarantee with one of the suppliers. In January of 2010 the supplier then sued debtor on the guarantee. Lipa then filed a motion to reopen his bankruptcy case in order to seek damages against the supplier for violating the discharge injunction.
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In this case the supplier argued that the personal guarantee was unaffected by the bankruptcy filing and that the guarantee applied to postpetition extensions of credit. In sorelying on this proposition, the supplier relied upon the decision in Weeks v. IsabellaBank Corp., 400 B.R. 117 (Bankr. W.D. Mich. 2009) for its position that prepetitionguaranties are not discharged in bankruptcy.
However, the Lipa court rejected that reasoning and instead relied upon RepublicBank Of Calif., N.A. v. Getzoff, 180 B.R. 572 (Bankr. 9th Cir. 1995). This case held thatthe meaning of claim was to be interpreted broadly and was meant to include personalguaranties within the scope of discharge.
In sum, it appears that if you have signed a personal guaranty prior to you filingyour Chapter 7 case, the debt would be discharged.