diff --git a/lib/srv/usermgmt.go b/lib/srv/usermgmt.go
index 66168eb013005..8714665f76929 100644
--- a/lib/srv/usermgmt.go
+++ b/lib/srv/usermgmt.go
@@ -675,6 +675,7 @@ func (u *HostUserManagement) getHostUser(username string) (*HostUser, error) {
 		group, err := u.backend.LookupGroupByID(gid)
 		if err != nil {
 			groupErrs = append(groupErrs, err)
+			continue
 		}
 
 		groups[group.Name] = struct{}{}
diff --git a/lib/srv/usermgmt_test.go b/lib/srv/usermgmt_test.go
index 1a1908e0f431d..f88f48fe93cf1 100644
--- a/lib/srv/usermgmt_test.go
+++ b/lib/srv/usermgmt_test.go
@@ -52,6 +52,7 @@ type testHostUserBackend struct {
 
 	setUserGroupsCalls       int
 	createHomeDirectoryCalls int
+	groupDatabaseErr         error
 }
 
 func newTestUserMgmt() *testHostUserBackend {
@@ -95,6 +96,10 @@ func (tm *testHostUserBackend) LookupGroup(groupname string) (*user.Group, error
 }
 
 func (tm *testHostUserBackend) LookupGroupByID(gid string) (*user.Group, error) {
+	if tm.groupDatabaseErr != nil {
+		return nil, tm.groupDatabaseErr
+	}
+
 	for groupName, groupGid := range tm.groups {
 		if groupGid == gid {
 			return &user.Group{
@@ -1105,3 +1110,28 @@ func TestHostUsersResolveGroups(t *testing.T) {
 		})
 	}
 }
+
+// errors fetching groups related to a user should not cause panics during UpsertUser
+func TestRegressionGroupErrorDoesNotPanic(t *testing.T) {
+	t.Parallel()
+
+	allGroups := []string{"foo", "bar", "baz"}
+	users, backend := initBackend(t, allGroups)
+
+	userinfo := services.HostUsersInfo{
+		Groups: slices.Clone(allGroups[:2]),
+		Mode:   services.HostUserModeKeep,
+	}
+
+	// Create user
+	closer, err := users.UpsertUser("alice", userinfo)
+	assert.NoError(t, err)
+	assert.Equal(t, nil, closer)
+	assert.Zero(t, backend.setUserGroupsCalls)
+	assert.ElementsMatch(t, append(userinfo.Groups, types.TeleportKeepGroup), backend.users["alice"])
+	assert.NotContains(t, backend.users["alice"], types.TeleportDropGroup)
+
+	backend.groupDatabaseErr = errors.New("could not find group")
+	_, err = users.UpsertUser("alice", userinfo)
+	require.Error(t, err)
+}