Reaffirmation of a Dischargeable Debt
By Richard Macias & Jane Fennelly

Question: If a customer files bankruptcy and doesn't include you on his list of creditors, saying he will pay you back, can you collect from him if he doesn't?

This is a circumstance where only total ignorance is bliss!

Under the Bankruptcy Code a debt is discharged if the creditor had “notice or actual notice of the case” in time to file a proof of claim with the bankruptcy court. “Notice” of the bankruptcy normally is mailed to all creditors listed on the debtor’s bankruptcy schedules in the form of a copy of the order of automatic stay. “Actual notice” usually refers to knowledge of the bankruptcy that can be attributed to correspondence or other contacts with the debtor, although information from any source may be the basis for “actual notice.” Basically, if a creditor is aware of the bankruptcy, the debt owed to that creditor will be discharged by the bankruptcy. The risk of not filing a bankruptcy proof of claim, if you have notice or actual notice of the bankruptcy, is that you will not be eligible to receive any distribution from the bankruptcy estate.

The Bankruptcy Code allows a debtor to reaffirm an otherwise dischargeable debt. A reaffirmed debt is not discharged by the bankruptcy. Reaffirmation requires bankruptcy court approval. The standards for obtaining bankruptcy court approval to reaffirm a debt are very strict. For example, if the debtor is not represented by counsel, bankruptcy judges have refused to approve reaffirmation agreements. If the debt is reaffirmed, the debtor can be legally compelled to repay the debt.

There is nothing that prohibits a debtor from making voluntary payments on a debt which has been discharged by a bankruptcy. If, however, a debtor merely agrees to pay a discharged debt, whether verbally or in writing, without court approval, this agreement amounts to a moral obligation but not a legal one. If the debtor decides not to fulfill this “moral” obligation, the debt is not one that can be enforced in a civil court .

Richard Macias and Jane Fennelly are with the Los Angeles creditors' rights law firm of Creim Macias Koenig & Frey LLP. They may be reached by telephone at 213-614-1944 and by email at rmacias@cmkllp.com or jfennelly@cmkllp.com.