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. |
