In general, chapter 7 bankruptcy cancels all personal and business debts owed by an individual including without limitation credit cards, medical bills, personal loans, repossessions, landlords, lawsuits, mortgages and car loans. However, if a person wants to keep their house or car, they must pay on the lien to keep the property even though the debt is discharged as to them personally.
Also, in general, chapter 7 bankruptcy does not cancel taxes, most student loans, alimony, child support, property settlements, fines and penalties. In addition, rarely, certain debts for willful malicious acts or incurred under fraud can be challenged and excepted from the bankruptcy discharge.
The above statements do have exceptions and answers to individual debt dischargeability questions can be quite complicated and must be reviewed on a case by case basis with a qualified attorney. This blog post will only describe in general the types of debts clients typically have to pay or want to pay after the bankruptcy is over.
One of the most common questions people ask is whether they can pay certain debts they feel are important after the bankruptcy case is over, such as a debt to a family doctor or a business supplier, or family member. These types of debts must be listed in a bankruptcy and the discharge eliminates the creditor’s legal ability to collect on the debt and the client’s legal obligation to pay it, but sometimes there is a continuing relationship with the creditor that a client feels would require them to pay that party something someday in the future if they are in a financial position to do so after their discharge and if their economic situation improves down the road.
I believe that at that point it would not be repayment of a debt because the debt has been discharged, but could be a gift or an act of mutual support or a future contract if a client feels payment is necessary. In any case, this too, must be analyzed on a case-by-case basis with a qualified attorney because the whole point of bankruptcy is to get a fresh start and clients should not burden that fresh start by paying discharged debts they cannot afford.
I am not aware of any specific prohibition against paying anyone after bankruptcy. You cannot pay friends, relatives, or other insiders within a year before a bankruptcy or to any creditor within 90 days if the payment is in excess of $600. This is called a preference and shows favoritism to a specific creditor in receiving money other do not.
But the question of payment of money to any party after bankruptcy, whether it be a mortgage, a car, or any other party is something that should be seriously considered and should only be done after consultation with your lawyer.
