The recent economic recession has affected Americans all over the country, causing hundreds of thousands of our friends and neighbors to take on multiple jobs or take out loans in order to make ends meet. Unfortunately, Georgia is no exception and many Georgian residents have found that they simply cannot meet their monthly debt obligations. Because of these financial issues, several individuals have contacted our office to discuss the prospect of filing for bankruptcy and how doing so may help them alleviate their families’ debts and get back on sound financial footing.
Our office is happy to answer any and all bankruptcy-related questions. One question that we frequently receive is “What are pre-petition and post-petition debts?”
The Difference Between Pre-Petition and Post-Petition Debts
In general, the great advantage to filing for Chapter 7 bankruptcy is that the debts the person incurred before date the person submitted the bankruptcy application are discharged (i.e. wiped away) at the conclusion of the process. The date the person submits the application is referred to as the petition date. (However, please note that not all kinds of debts incurred before the petition date will qualify for a Chapter 7 discharge. Debts such as child support, alimony, and student loans will not be discharged even if they were incurred before the petition date.)
Conversely, those debts incurred after the petition date will not be subject to the discharge and the person will continue to be liable for those debts after the conclusion of the Chapter 7 case. This includes any debts that are incurred during the time between the petition date and the Chapter 7 discharge date.
It is usually very easy to categorize a debt as pre or post-petition, but some debts can be tricky to classify. For example, car loans, mortgages, and other types of installment debts are typically paid on a monthly basis – making payments due both before and after the bankruptcy petition date. However, as long as these types of loans were initially incurred before the petition date, they will be classified as pre-petition debts.
Importantly, it should be emphasized that while the Chapter 7 bankruptcy discharges an individual’s personal liability for these debts, the discharge does not get rid of the lien on the property that has served as the loan’s collateral. Therefore, if the person does not make the payments, the bank could still foreclose on the person’s house or the car financer may repossess the car – even after the bankruptcy concludes. (To learn more about how to keep your house and car during the bankruptcy process, contact our office.)
Information on Reaffirmation of Debts
After a person files Chapter 7 bankruptcy, the person’s creditors will likely contact him or her and ask that the debt owed to the creditor be reaffirmed. If a debt is reaffirmed, then the person will basically reinstate personal liability for that debt even though the debt was incurred before the petition date. Reaffirmation of debts is sometimes necessary for the person to be able to keep the property in question such as a house or a car. Contact our office for more information on reaffirmation of debts.
Special Consideration for Leases
Additionally, leases are also considered pre-petition debts as long as the lease agreement was signed before the petition date. However, similar to reaffirmation, a lease may need to be “assumed” in order for the person to remain in possession of the property after the bankruptcy concludes. Assuming a lease requires the person to pay the outstanding lease payments and the future payments, so the decision to do so should be discussed with an experienced attorney.
If you are considering filing for bankruptcy and have further questions about the process, call 404-913-1529 or fill out our contact form to speak to one of our attorneys. We look forward to working with you!