diff --git a/fundingmanager.go b/fundingmanager.go
index f839ac05..3ff7979c 100644
--- a/fundingmanager.go
+++ b/fundingmanager.go
@@ -310,7 +310,9 @@ func (f *fundingManager) handleFundingRequest(fmsg *fundingRequestMsg) {
 	// TODO(roasbeef): passing num confs 1 is irrelevant here, make signed?
 	reservation, err := f.wallet.InitChannelReservation(amt, 0, fmsg.peer.lightningID, 1, delay)
 	if err != nil {
+		// TODO(roasbeef): push ErrorGeneric message
 		fndgLog.Errorf("Unable to initialize reservation: %v", err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
@@ -343,6 +345,7 @@ func (f *fundingManager) handleFundingRequest(fmsg *fundingRequestMsg) {
 	}
 	if err := reservation.ProcessSingleContribution(contribution); err != nil {
 		fndgLog.Errorf("unable to add contribution reservation: %v", err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
@@ -403,6 +406,7 @@ func (f *fundingManager) handleFundingResponse(fmsg *fundingResponseMsg) {
 	if err := resCtx.reservation.ProcessContribution(contribution); err != nil {
 		fndgLog.Errorf("Unable to process contribution from %v: %v",
 			sourcePeer, err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
@@ -465,6 +469,7 @@ func (f *fundingManager) handleFundingComplete(fmsg *fundingCompleteMsg) {
 	if err := resCtx.reservation.CompleteReservationSingle(revokeKey, fundingOut, commitSig); err != nil {
 		// TODO(roasbeef): better error logging: peerID, channelID, etc.
 		fndgLog.Errorf("unable to complete single reservation: %v", err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
@@ -514,6 +519,7 @@ func (f *fundingManager) handleFundingSignComplete(fmsg *fundingSignCompleteMsg)
 	commitSig := append(fmsg.msg.CommitSignature.Serialize(), byte(txscript.SigHashAll))
 	if err := resCtx.reservation.CompleteReservation(nil, commitSig); err != nil {
 		fndgLog.Errorf("unable to complete reservation sign complete: %v", err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
@@ -594,6 +600,7 @@ func (f *fundingManager) handleFundingOpen(fmsg *fundingOpenMsg) {
 	openChan, err := resCtx.reservation.FinalizeReservation()
 	if err != nil {
 		fndgLog.Errorf("unable to finalize reservation: %v", err)
+		fmsg.peer.Disconnect()
 		return
 	}
 
diff --git a/peer.go b/peer.go
index e094fe35..416517e8 100644
--- a/peer.go
+++ b/peer.go
@@ -275,6 +275,32 @@ func (p *peer) Stop() error {
 	return nil
 }
 
+// Disconnect terminates the connection with the remote peer. Additionally, a
+// signal is sent to the server and htlcSwitch indicating the resources
+// allocated to the peer can now be cleaned up.
+func (p *peer) Disconnect() {
+	if !atomic.CompareAndSwapInt32(&p.disconnect, 0, 1) {
+		return
+	}
+
+	peerLog.Tracef("Disconnecting %s", p)
+	if atomic.LoadInt32(&p.connected) != 0 {
+		p.conn.Close()
+	}
+
+	close(p.quit)
+
+	// Launch a goroutine to clean up the remaining resources.
+	go func() {
+		// Tell the switch to unregister all links associated with this
+		// peer. Passing nil as the target link indicates that all links
+		// associated with this interface should be closed.
+		p.server.htlcSwitch.UnregisterLink(p.lightningID, nil)
+
+		p.server.donePeers <- p
+	}()
+}
+
 // String returns the string representation of this peer.
 func (p *peer) String() string {
 	return p.conn.RemoteAddr().String()
@@ -376,7 +402,10 @@ out:
 		}
 	}
 
+	p.Disconnect()
+
 	p.wg.Done()
+	peerLog.Tracef("readHandler for peer %v done", p)
 }
 
 // writeMessage writes the target lnwire.Message to the remote peer.
@@ -416,8 +445,9 @@ out:
 			}
 
 			if err := p.writeMessage(outMsg.msg); err != nil {
-				// TODO(roasbeef): disconnect
 				peerLog.Errorf("unable to write message: %v", err)
+				p.Disconnect()
+				break out
 			}
 
 			// Synchronize with the writeHandler.
@@ -447,6 +477,7 @@ fin:
 		}
 	}
 	p.wg.Done()
+	peerLog.Tracef("writeHandler for peer %v done", p)
 }
 
 // queueHandler is responsible for accepting messages from outside sub-systems
@@ -520,12 +551,14 @@ out:
 				snapshots = append(snapshots, snapshot)
 			}
 			req.resp <- snapshots
+
 		case pendingChanPoint := <-p.barrierInits:
 			p.barrierMtx.Lock()
 			peerLog.Tracef("Creating chan barrier for "+
 				"ChannelPoint(%v)", pendingChanPoint)
 			p.newChanBarriers[pendingChanPoint] = make(chan struct{})
 			p.barrierMtx.Unlock()
+
 		case newChan := <-p.newChannels:
 			chanPoint := *newChan.ChannelPoint()
 			p.activeChannels[chanPoint] = newChan
@@ -556,10 +589,13 @@ out:
 			close(p.newChanBarriers[chanPoint])
 			delete(p.newChanBarriers, chanPoint)
 			p.barrierMtx.Unlock()
+
 		case req := <-p.localCloseChanReqs:
 			p.handleLocalClose(req)
+
 		case req := <-p.remoteCloseChanReqs:
 			p.handleRemoteClose(req)
+
 		case <-p.quit:
 			break out
 		}
@@ -799,8 +835,10 @@ out:
 				// TODO(roasbeef): this assumes no "multi-sig"
 				pre := htlcPkt.RedemptionProofs[0]
 				if _, err := channel.SettleHTLC(pre, true); err != nil {
+					// TODO(roasbeef): broadcast on-chain
 					peerLog.Errorf("settle for outgoing HTLC rejected: %v", err)
-					continue
+					p.Disconnect()
+					break out
 				}
 			case *lnwire.CommitSignature:
 				// We just received a new update to our local
@@ -811,7 +849,8 @@ out:
 				sig := htlcPkt.CommitSig.Serialize()
 				if err := channel.ReceiveNewCommitment(sig, logIndex); err != nil {
 					peerLog.Errorf("unable to accept new commitment: %v", err)
-					continue
+					p.Disconnect()
+					break out
 				}
 
 				// If we didn't initiate this state transition,
@@ -847,7 +886,8 @@ out:
 				htlcsToForward, err := channel.ReceiveRevocation(htlcPkt)
 				if err != nil {
 					peerLog.Errorf("unable to accept revocation: %v", err)
-					continue
+					p.Disconnect()
+					break out
 				}
 				// TODO(roasbeef): send the locked-in HTLC's
 				// over the plex chan to the switch.
@@ -900,6 +940,7 @@ out:
 	}
 
 	p.wg.Done()
+	peerLog.Tracef("htlcManager for peer %v done", p)
 }
 
 // updateCommitTx signs, then sends an update to the remote peer adding a new