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Reorganization Plan Discharging Debtor Did Not Discharge Obligations of Guarantors

The Michigan Court of Appeals recently addressed the obligations of guarantors in connection with a bankruptcy discharge. In Talmer West Bank v. Stewart, Nos. 316678; 317420 (Mich. Ct. App. December 11, 2014), the bankruptcy court had confirmed a reorganization plan discharging the debtor of certain loan repayment obligations. The lender later filed a complaint in Kalamazoo County Circuit Court against the guarantors on the loan seeking repayment. The trial court entered a judgment against the guarantors for the full amount of the repayment obligations, and the Court of Appeals affirmed the judgment. The Court stated, "Generally, '[t]he discharge of a debtor in bankruptcy does not discharge the obligations of guarantors.'" The guaranty is only discharged if the guarantor's discharge is "accepted and confirmed as an integral part of reorganization." The Court found nothing in the plain language of the reorganization plan expressly indicating the guaranties were discharged and, therefore, the obligations remained intact. The Court's opinion is a strong reminder that guarantors' silence during bankruptcy proceedings may have consequences long after plan confirmation.

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