| Can A Debt Discharged In Bankruptcy Be Restored? |
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| Written by John Allen Farrer |
| Tuesday, 22 June 2010 15:34 |
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Let's imagine that Tom Martin owed a local hardware store $875 for tools and supplies. Unfortunately, Tom Martin was overloaded with debt, and he couldn't pay off the amount he owed to the store. Eventually, Tom decided to declare bankruptcy. He found a good lawyer, and he filed for bankruptcy. After proceeding through the judicial system, the bankruptcy court erased all of Tom's debts.
Let's imagine that Tom Martin owed a local hardware store $875 for tools and supplies. Unfortunately, Tom Martin was overloaded with debt, and he couldn't pay off the amount he owed to the store. Eventually, Tom decided to declare bankruptcy. He found a good lawyer, and he filed for bankruptcy. After proceeding through the judicial system, the bankruptcy court erased all of Tom's debts. Nevertheless, Tom had always had a good relationship with Jim Miller, the proprietor of the hardware store, and he felt guilty that Jim had never been paid. He dreaded going back into the hardware store. So one Friday afternoon when Tom was purchasing some electrical supplies at the hardware store, Tom spoke with Jim, the store owner. He told Jim he was truly sorry for having to declare bankruptcy, but that he just was too far into debt. At the same time, Tom told Jim, "You know, I never intended for you not to get paid. Therefore, I promise you that I'm going pay you all that I owe you, the same as if I had never filed for bankruptcy." Well as it turned out, Tom's finances never got any better. So although he promised Jim that he would pay him, Tom actually never paid anything on the debt. So after ten months, Jim, the store owner, employed an attorney himself. He then sued Tom for the entire $875 he had promised to pay. Once the case was heard by the court, guess he won: Tom, the debtor, or Jim, the hardware store owner? Can the Hardware Store Enforce This Debt? In most states, Jim, the hardware store owner would prevail. The judge would probably rule that the bankruptcy court barred the enforcement of the debt, but it never erased the moral obligation to pay the debt. Therefore, the judge would rule that the actual debt, coupled with the moral obligation to pay, is sufficient consideration to support the new promise to pay. In some states, courts have said that in cases such as this, the new pledge made by Tom revives the old debt he originally owed to Jim, the hardware store owner. To put it another way, the moral right continues to exist. The bankruptcy court merely had barred the remedy to collect the debt. This is all consistent with a long-standing principle of law that an earlier debt constitutes sufficient legal consideration for a subsequent promise to pay that debt. This legal rule applies not only to bankruptcies, but also to debts that are barred from enforcement by the statute of limitations. In most states, a creditor has four years to sue on a debt that is past due. If he waits ten years, he can no longer legally collect the debt. However, after ten years, if the debtor makes a new promise to pay the old debt, then the new promise is enforceable. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. John Allen Farrer, is a retired lawyer who writes extensively on various legal topics. He recently wrote a helpful report on finding lawyers, the title of which is "How to Find a Good Attorney." For a limited time, you can receive a free copy of this report by going to his website, Finding the Best Lawyers |