Creditors You Intend To Pay
Almost all debtors in bankruptcy are honest people who have experienced great financial difficulty. One of the most common questions asked by debtors is, “Do I need to list a creditor I intend to repay?”
The answer to this question is very simple: “Yes!” You must list all of your debts and each of your creditors, even those you intend to repay. There are two ways to repay a debt after bankruptcy. The first is by voluntary payment. The second is with a reaffirmation agreement.
Voluntary payments made after your bankruptcy discharge neither create a new legal obligation nor invalidate the discharge order. Any payment you make on a discharged debt is the result of a moral obligation since the legal obligation to pay the debt has been discharged by the bankruptcy court. The creditor is still prohibited from contacting you or trying to collect on the debt.
A reaffirmation agreement is a new contract between you and your creditor. It is fully enforceable after the bankruptcy, so if you default on the obligation the creditor can sue you and repossess any property securing the agreement. Reaffirmation agreements are commonly used to continue auto and home loans. The debtor agrees to continue the legal obligation to pay the loan, and the lender agrees to not repossess the collateral.
Reaffirmation agreements are only available to Chapter 7 debtors and the agreement must be executed before the bankruptcy discharge is entered. The debtor can revoke the agreement with 60 days after the agreement is signed. The Bankruptcy Code requires that the debtor demonstrate that the paying a reaffirmed debt will not create an undue hardship for the debtor or the debtor’s family. While a reaffirmation agreement can be used for credit card agreements and other unsecured loans, bankruptcy courts are reluctant to approve these agreements without exceptional circumstances.
You are free to continue to pay a debt after your bankruptcy. Congress specified in the Bankruptcy Code that “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.” There are several legal options for repaying a debt after bankruptcy, as well as several avenues for debt restructuring. Discuss your specific situation with your bankruptcy attorney and discover your options.
Living With Non-Dischargeable Student Loans
The federal bankruptcy code states that a debtor may obtain a discharge of a government-sponsored student loan only if repaying the loan would impose an “undue hardship” on the debtor and his dependents. Most bankruptcy courts interpret “undue hardship” as meaning that the debtor cannot repay the loan and maintain a minimal standard of living. As a result of this very high bar, it is rare that a student loan is discharged during bankruptcy.
Consequently, many bankruptcy debtors are caught in a student loan trap of being unable to pay on the student loan and the interest continues to accrue. While discharging the student loan may not be possible, there are options for dealing with a student loan during and after bankruptcy.
First, the student loan lender or collection agency is strictly forbidden from engaging in any collection action during the bankruptcy. This protection (known as the “automatic stay”) may last from a few months during a Chapter 7 to several years during a Chapter 13 repayment plan. Interest may continue to accrue and will be tacked-on at the end of the bankruptcy case.
Second, if the student loan was not defaulted prior to the bankruptcy filing (meaning no payment for more than 270 days), the account will usually be re-aged and is considered current upon the conclusion of the bankruptcy case. This is a good time to negotiate with the lender for a payment plan you can afford. If the student loan was defaulted prior to the bankruptcy, the lender may offer a loan rehabilitation program.
Finally, your student loan lender has many repayment options after your bankruptcy case ends, including the Income Based Repayment Plan which limits your loan repayment to 15% of your income and offers loan forgiveness after 25 years of repayment (or 10 years for public service employees).
If you are struggling with student loan debt, speak to an experienced bankruptcy attorney and discuss your options. Your attorney can explain the many ways for dealing with student loan debt and can help you decide on a course of action that is best for you and your family.
Discharging Post-Petition Debt in Chapter 13
A lot can happen during a Chapter 13 repayment plan which generally lasts three to five years. Sometimes large debts are incurred that the debtor is unable to pay. Fortunately, a Chapter 13 debtor is able to discharge a post-petition debt, but only after certain prerequisites are met.
First, the debtor must amend the repayment plan to provide for a post-petition debt. Second, the debtor must usually obtain the approval of the bankruptcy trustee prior to incurring the debt. This is not always obtainable, especially in the case of a large medical bill. Third, the creditor must voluntarily choose to file a proof of claim. And finally, the claim must either be a tax claim, or a claim for a consumer debt necessary for the completion of the debtor’s plan.
A common situation in which post-petition debts arise in a Chapter 13 case is where the debtor needs to purchase a different automobile. Repaying a post-petition car loan through a Chapter 13 plan is easily accomplished through coordination and cooperation from the trustee, the lender, and the court. The lender agrees to be paid by the trustee, the trustee agrees to sanction the debt, and the court approves the amended plan allowing the lender to be paid through the bankruptcy plan.
In some cases it may not be practical to include a post-petition debt in the debtor’s Chapter 13 plan. In that case, the debtor may elect to convert the Chapter 13 case to one under Chapter 7. The Bankruptcy Code states that a debt that arises after the Chapter 13 filing date, but before the debtor’s conversion to Chapter 7, is to be treated as a pre-petition debt. The Chapter 13 restrictions and requirements listed in the preceding paragraph do not apply to debts in a conversion case.
The Bankruptcy Code contains many flexible options for reorganizing your finances and dealing with your creditors. Even when there is an unexpected event that results in a debt, your bankruptcy attorney can provide you with choices for dealing with a post-petition debt.