Repaying Debts After the Bankruptcy

Sometimes I am asked by debtors if  they can pay their creditors after they received a bankruptcy discharge. My answer to them is that there is nothing in the bankruptcy law that prohibits debtors from voluntarily paying their creditors, either those creditors that are important to you, or all of them. However, for me as a bankruptcy lawyer, it can be a bit difficult to understand since debtors typically file for bankruptcy protection because they cannot afford to pay their creditors.  At the same time, I understand that under some circumstances debtors make a deliberate decision to repay someone.

In many different situations, debtors have creditors that are important to them. Those creditors may be family member who have loaned debtors money. Typically, debtors do not want to discharge the debt owed to close relatives. In those situations, my advice is to list the debt but, once the case is over, repay it voluntarily.

Another usual situation is where the debtor may have credit at a small, local store. Since it may be important for the debtor to have that access to such credit, the debtor may choose to pay that debt even after the bankruptcy case is over and the debt is discharged.

From the creditor’s side, once the bankruptcy is filed, the creditor may not contact the debtor to attempt to “persuade” him to “voluntarily” pay the debt. TIf any creditors does this, it would be viewed by the bankruptcy court as an attempt to collect a discharged debt in violation of the discharge injunction.

If the debtor decides to repay a debt after filing for either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, he should be very careful about making payments on a discharged debt. If a creditor were to sue the debtor on a discharged debt in state court, the debtor could raise the fact that the debt was discharged in bankruptcy by raising it as an affirmative defense in state court litigation or he could remove the action to bankruptcy court and allow the bankruptcy court to enforce its discharge injunction. By making payments on a discharged debt, the debtor could create a “waiver” of the bankruptcy discharge on that particular debt.

If you are contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, New York, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

New Student Loan Program and Debt Relief

I have recently learned about a new program that will be good news to the hundreds of thousands of recent college graduates with significant student debt. A new program called Income-Based Repayment (“IBR”) may help you control your student loan debt.

IBR is a program introduced by the government in 2007; however, its full effects didn’t start until July 1, 2009 This program was designed to make sure that graduates who aren’t earning a significant income after graduation aren’t spending all their income on repaying their student loans.

IBR can help with individuals who meet the following criteria:

  • Have loans (to students, not their parents) from either the Direct or Guaranteed (FFEL) loan programs or (most) government-funded loans
  • Have enough debt to qualify. Specifically, you must have debt that would require you to spend more than 15 percent of your income in excess of 150% of the poverty level to pay off your loans in ten years – calculator available here

Interest Rates for Adjusted Loans

While the IBR program may make your monthly payments more affordable, it could also mean that your monthly payments don’t cover your full interest rates. This means that:

  • For federally subsidized loans, the government would pay the remaining interest for the first three years
  • For non-subsidized loans, the unpaid interest would be tacked onto the principal amount you owe

The second option may mean you end up paying more in the long term, but if your earnings increase over the years, this likely won’t be a significant problem. Plus, the IBR program has the unique provision that any amount still due after 25 years is forgiven.

What is Public Service Loan Forgiveness?

It’s the other loan forgiveness program taking full effect this month, and it’s designed to help those who work in certain so-called public service jobs, including those for the government and nonprofit 501(c)(3) organizations.

If your job qualifies under this program, your loans may be forgiven in full after 10 years of work (during which time you make normal loan payments). And, if your salary qualifies you for IBR loan payments while you’re working, you can still use that program to make payments more affordable.

To find out whether your employment situation may qualify you for help with student loans, visit IBR’s website. While student loans are not dischargeable in Chapter 7 bankruptcy, unless you are in a hardship situation, and have to be paid during the Chapter 13 bankruptcy, IBR may be that last piece of the puzzle on your road to a financial fresh start.

If you are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a bankruptcy attorney.