When a Personal Guaranty Fails: Lessons From a Sixth Circuit Bankruptcy Case

A parent lends money to a son’s company, the son signs the note, and everyone assumes the son is on the hook if the company cannot pay. When the business fails and bankruptcy follows, that assumption gets tested by a bankruptcy trustee charged with recovering and administering property for the bankruptcy estate.

On August 6, 2026, the U.S. Court of Appeals for the Sixth Circuit, which hears federal appeals from Michigan, decided that kind of dispute in Sullivan v. Miller, a case from the bankruptcy court in Detroit. It carries two lessons for lenders: a personal guaranty has to be clearly written, and taking property from a struggling borrower to settle a debt can be undone if the borrower files bankruptcy soon after.

What happened

Over nearly a decade, Jason Wylie and his mother, Kathleen Sullivan, exchanged property, loans, and mortgages. Sullivan deeded three properties to Wylie in 2011 and 2014 and took mortgages back. In 2011 she also lent $200,000 to his business, Wylie’s Rentals & Excavation, Inc.; a renegotiated 2014 note replaced the original.

In 2018, cancer treatment left Wylie too sick to farm, his businesses defaulted, and he stopped paying his mother. In August 2019, he deeded all three properties back to her in exchange for a “Mutual Release in Full” of her claims related to the listed mortgages and promissory notes.

In August 2020, Wylie filed a Chapter 7 bankruptcy seeking to discharge nearly $2 million in debt, and the trustee sued Sullivan. After a trial, the bankruptcy court found that Wylie had transferred properties worth $893,000 in exchange for a release of $737,516 in personal debt. Because the $155,484 difference meant he did not receive “reasonably equivalent value,” the court held the transfer constructively fraudulent and ordered Sullivan to return one property to the bankruptcy estate. The federal district court affirmed.

The legal framework

Under the Bankruptcy Code, a trustee may avoid (undo) a transfer of the debtor’s property made within two years before the bankruptcy filing if the debtor made it with actual intent to hinder, delay, or defraud creditors, or if the debtor “received less than a reasonably equivalent value in exchange” and, among other circumstances, was insolvent at the time or became insolvent as a result (11 U.S.C. § 548(a)(1)). The second kind is called a constructively fraudulent transfer, because no bad intent is required. Satisfying or securing a debt the debtor owes counts as “value” (11 U.S.C. § 548(d)(2)(A)).

Once a transfer is avoided, the trustee may recover “the property transferred, or, if the court so orders, the value of such property” for the benefit of the estate (11 U.S.C. § 550(a)).

That framework explains why the personal guaranty mattered. Sullivan argued that her son had personally guaranteed the $200,000 business loan, and that the 2019 release also wiped out that personal obligation. If it had, her son would have received more value in the exchange, which would have undercut the finding that he received less than reasonably equivalent value.

What the Sixth Circuit held

One signature block, read with the note as a whole, did not create a personal guaranty

The court applied Michigan contract law, as the parties agreed it should, and started from two presumptions. First, Michigan law generally does not hold a corporation’s officers liable for the corporation’s debts or contracts. Second, signature blocks matter. Quoting the Michigan Court of Appeals in Livonia Building Materials Co. v. Harrison Construction Co. (2007), the court noted that “where individual responsibility is demanded the nearly universal practice is that the officer signs twice—once as an officer and again as an individual.” When an officer signs only once, courts look at the descriptors in the signature block and at how the body of the contract refers to the parties.

The 2014 note had one signature block, which listed Wylie as signing as “President” of the company and “individually.” The words “guarantee” and “guaranty” appeared nowhere in the 2014 note or the original 2011 agreement. And the body of the note named only the company as the obligor, three times: the company “promises to pay” the $200,000, principal and interest “shall be paid by” the company, and “Payer: Wylie’s Rental[s].”

The court accepted the lower courts’ explanation for the word “individually.” The note required the company to buy a life insurance policy on Wylie to back the loan if he died. That provision concerned him as an individual, but it did not make him personally liable for the debt. As the court put it, it would have been easy to list Wylie individually as a payer or a guarantor, “[b]ut those words do not appear in the contract.”

After-the-fact testimony and documents did not change the contract

Sullivan and Wylie both testified that they intended him to be personally liable. The bankruptcy court did not believe them, finding that their testimony appeared motivated by a desire to keep the property in the family instead of in the hands of other creditors, and the Sixth Circuit deferred to that credibility finding. Two documents Sullivan created later, a 2018 affidavit listing the loan among her son’s personal debts and the 2019 release itself, were not controlling either, because they were prepared after the contract and shared the same self-interest. Her argument that Wylie had orally guaranteed the loan was forfeited because she had not raised it in the bankruptcy court.

A release covers what it says, not what its title suggests

Sullivan also argued that the “Mutual Release in Full” settled her claim for $33,000 her son had taken from her bank account in 2017 using a power of attorney. The court disagreed. The release covered claims “related to the Mortgages and Promissory Notes” listed by date, and the 2017 money was never part of any mortgage or note. The title of a document does not expand obligations beyond its actual terms: the release was “in full” because it fully released the listed debts, not because it reached debts it did not mention.

The court could order the property itself returned

Finally, the bankruptcy court ordered Sullivan to return the one property that was already paid off, rather than pay the $155,484 difference in money. Because 11 U.S.C. § 550(a) lets the court choose between recovering the property or its value, and because Sullivan had not challenged that choice in the bankruptcy court, the Sixth Circuit found no abuse of discretion. The court noted that Sullivan might still have a claim against the bankruptcy estate for any amount she is owed (11 U.S.C. § 502(h)).

Because Sullivan is a published Sixth Circuit decision, it is binding on the federal courts in Michigan, including the bankruptcy courts. Its reading of Michigan contract law is not binding on Michigan’s state courts, but it rests on principles drawn from Michigan decisions.

What this means for lenders and business owners

If you lend money to a business, including a family member’s business:

• Make the guaranty unmistakable. Use a separate guaranty document, or a second signature line where the owner signs as an individual guarantor, and use the word “guaranty” and name the guarantor in the body of the agreement. Do not rely on the word “individually” next to a title.
• Draft releases precisely. List every debt the release is meant to cover. A title like “Release in Full” will not stretch the document to debts it does not describe.
• Be careful taking property from a struggling borrower. If the borrower files bankruptcy within two years and the property was worth more than the debt released, a trustee may be able to undo the transfer. A contemporaneous, supportable valuation and an accurate calculation of the debt being released can reduce the risk, but they do not necessarily prevent a trustee from challenging the transaction. Separate remedies may also be available to creditors under Michigan’s Uniform Voidable Transactions Act, MCL 566.31 et seq. (see our guide to fraudulent transfers for Michigan creditors).
• Document the deal when you make it. Testimony and paperwork created after trouble starts, especially by family members, may carry little weight.

If you own a business and sign for it:

• Know which capacity you are signing in. Signing as an officer generally binds the company. Signing again as an individual, or signing a separate guaranty, can put your personal assets on the line.

Frequently asked questions

How can I tell if I personally guaranteed my company’s loan in Michigan?

Look at both the signature page and the body of the agreement. A personal guaranty is normally shown by a second signature as an individual or a separate guaranty document. With only one signature, courts look at how the agreement describes the signer and the parties.

Does signing “individually” make me personally liable?

Not necessarily. In Sullivan v. Miller (2026), a borrower who signed one signature block as “President” and “individually” was held not to have personally guaranteed his company’s loan, because the note named only the company as the payer. Different language could produce a different result.

Can a bankruptcy trustee undo a transfer of property to a relative before bankruptcy?

In some circumstances, yes. Under 11 U.S.C. § 548(a)(1), a transfer made within two years before the filing can be undone if it was intended to defraud creditors, or if it was made for less than reasonably equivalent value while the debtor was insolvent or in certain other financial circumstances, as in Sullivan.

If the trustee recovers property from me, do I lose what I was owed?

Not necessarily. Under 11 U.S.C. § 502(h), a claim that arises from the trustee’s recovery of property is treated as if it arose before the bankruptcy filing (see our post on filing a proof of claim when a customer files bankruptcy). In Sullivan, the court noted that the mother might still have a claim against the bankruptcy estate. Any such claim would remain subject to the Bankruptcy Code’s ordinary claim-allowance, priority, and distribution rules.

Related reading: Michigan creditor representation and commercial collections, undoing a debtor’s transfer to a family LLC, filing a proof of claim when a customer files bankruptcy, and when a company credit card creates personal liability.

Please note: This article is provided for general educational and informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship between you and the Law Offices of Maynard F. Newman, P.L.L.C. Sullivan v. Miller is a published decision of the U.S. Court of Appeals for the Sixth Circuit, but the law may change, and outcomes depend heavily on the specific documents and facts; confirm the current law before relying on any summary. You should consult a qualified Michigan attorney about your own circumstances before acting. This content may also be considered attorney advertising.