 Debts not reaffirmed don't have to be paid
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 Dear
Bankruptcy Adviser,
I have continued to make payments on two of the accounts listed
on my bankruptcy petition of last October, in attempting to maintain
good relationships with them. Now due to rapidly decreasing health
I may have to quit making payments. I have given neither of them
anything in writing (other than the checks I've written) stating
that I would continue paying on the accounts. What can happen if
I just stop payments?
-- Shirley
 Dear
Shirley,
This is a very common question I receive from clients filing Chapter
7 bankruptcy. If you don't mind, I'll reword your question
so that all of the readers understand how your question might apply
to them. What you're asking is, "If I haven't reaffirmed
a debt that has been discharged via bankruptcy, what happens if
I stop making payments?"
The term "reaffirm" is important -- especially
after the institution of the new laws of October 2005. Typically,
it is used with car loans or home mortgages. Most people who
file Chapter 7 bankruptcy, but want to keep their cars and homes,
complete the petition stating that they "intend to keep the
vehicle (or home) and continue making payments."
Under the old laws, many people would not reaffirm
their car loans; they just continued making the monthly payments
on a debt that had already been discharged. Thus, if a person
failed to make a few payments and the car was repossessed and sold,
the creditor could not sue for the remaining balance. This remaining
balance is known as the "deficiency." The deficiency is
the difference between the value of the loan taken out by the creditor
and the amount of money recovered from the sale of the vehicle.
Under the new laws, you need to reaffirm the debt
owed to the lender on the car. In other words, you promise to continue
making payments after you've received your discharge. Here's how
this works: The lender will send you a reaffirmation agreement
to sign, you send it back, and the lender sends the reaffirmation
agreement to the court. The debt in the agreement is then NOT
eliminated in the bankruptcy. Therefore, if you default on the car
payments and the car is repossessed and sold, if there is a deficiency
you will be required to pay it.
But many loans are far more personal. Many creditors
have loaned money to people with whom they have long-standing relationships,
such as a doctor, a dentist or even Grandma. Technically, when
you list all of your debts on your petition, you also list your
doctor and Grandma. Whatever balance you have with your doctor
and whatever money Grandma has lent you, those debts are erased
by your bankruptcy. However, you may want to keep seeing your doctor
and you may want Grandma to keep baking you cookies, and so you
may elect to continue paying on those debts.
Shirley, what you're asking is what happens if you
stop paying these two accounts. From a legal perspective, nothing. They
can't sue you. You're not required to be making payments. However,
in my experience, something will happen: They will get upset. This
is understandable, and yet it is also understandable that with your
ailing health you are being forced to make difficult choices. It
may be possible, depending on your relationship with these creditors,
to negotiate some kind of agreement to protect your relationships,
e.g., a small lump sum payment or a promise to pay in the future. Regardless,
I wish you a lot of luck. You're doing the best you can and
I hope that you get well soon.
Justin Harelik is a practicing attorney in Los
Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask
the Experts" page and select "bankruptcy" as
the topic.
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