The client came to see me on a sunny Thursday in the middle of an otherwise cold winter, wondering what had happened to her ordinary Chapter 7 bankruptcy case. I hated to be the bearer of bad news, but there it was.
This kind and gentle man had filed for bankruptcy with another (very competent) lawyer, listing a debt of $27,000 to a (former) friend of his. The money had, predictably, gone to pay the gentleman’s debts in the months leading up to his bankruptcy filing, an attempt to avoid what turned out to be unavoidable.
About a month after the case was filed, my potential client received notice that he was being sued in bankruptcy court. His old buddy was asking the bankruptcy judge to declare the $27,000 debt exempt from discharge on the basis that he had allegedly taken the loan on false pretenses.
The original bankruptcy lawyer took no action, this not being part of the original retainer agreement. The debtor didn’t have the financial ability to hire a lawyer for a defense, and so he went it alone.
You know where this is headed, right? Yup, he lost the case. Judge deemed the $27,000 debt exempt from discharge. So now the man comes to me pleading for a solution.
What If The Bankruptcy Court Orders Repayment?
If a debt is deemed nondischargeable in a Chapter 7 bankruptcy, that debt survives until it is paid in full – period. You can’t file another Chapter 7 bankruptcy later on and hope to wipe it out.
There is, however, an option for handling these debts. That option is Chapter 13,which will allow you to repay the debt out over time. Though you won’t qualify for a discharge of the debt at the end of the Chapter 13 Plan, you will be able to create a payment plan based on your income and expenses. If there’s an unpaid balance at the end of the Chapter 13 case then you can either pay the balance off on your own or file another Chapter 13 until it’s paid in full.
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