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In this week’s Research Assistant Peer Group meeting, we discussed a rare but tricky scenario: a consumer who has filed for bankruptcy protection wants to make payments on a debt included in their bankruptcy.
This raises two important questions:
- Should you give the mini-Miranda
- Should you even accept the payment?
Mini-Miranda?
We all agreed — no. It doesn’t matter whether the bankruptcy is Chapter 7 or Chapter 13. Once a bankruptcy is filed, the debtor is protected, and neither the creditor nor the debt collector can attempt to collect any debt included in the filing.
With that said, things get more complicated.
Chapter 7 Considerations
Chapter 7 typically results in a total discharge of debt within a few months of filing. Once discharged, the debtor is no longer legally responsible for the debt.
If they choose to make a voluntary payment for personal reasons, the creditor may accept it. However:
- Never ask for more.
- Do not set up a payment plan.
- Never say you are attempting to collect a debt.
The safest way to view this is as a one-time voluntary “donation.”
Chapter 13 Considerations
Chapter 13 involves a repayment plan, usually lasting 3–5 years. Creditors who file proof of claims are paid through the bankruptcy trustee, not directly by the consumer. After the plan is complete, remaining balances are discharged and cannot be collected.
Violating the Stay
Any attempt to collect on a debt included in bankruptcy, such as giving the mini-Miranda or setting up payments, risks violating the automatic stay, which can result in fines or penalties.
Co-Debtor Situations
Bankruptcy is filed by an individual. If more than one person owes a debt, both must file for it to be discharged for both parties.
- If only one co-debtor files, the other still owes the debt.
- For the bankrupt debtor, during a chapter 13 reimbursement plan, they are protected against garnishment for any new debt they may incur until the plan is completed. This makes sense because every month for the life of the repayment plan, the bankrupt debtor must send the court a set amount of disposable income to be distributed to the creditors who filed claims in chapter 13. Garnishments are attached to disposable income. If the bankrupt debtor’s disposable income is “owned” by the bankruptcy court, it can’t be garnished for other bills.
- For the non-bankrupt co-debtor, this is different. In chapter 13, the non-filing co-debtor has some protection: you cannot garnish them for the portion of the debt included in the plan until the plan is completed. However, they can still be sued or garnished for other debts. Their disposable income is their own.
Reaffirmation of Debt
When a debtor chooses to repay a debt that would have been discharged in bankruptcy, they can reaffirm the debt. This usually happens when they do not want to liquidate the secured property, and payment still falls within the guidelines allowed for bankruptcy. This would be accomplished through a reaffirmation agreement with the debtor and the creditor. This will remove the debt from the bankruptcy, meaning it is legally owed and will not be discharged.
New Debt After Bankruptcy
If a consumer incurs new debt after filing bankruptcy, that debt is collectible. You may give the mini-Miranda, send letters, set up payment plans, and even file lawsuits.
Bottom Line
It’s wise to have a written policy:
- If you know a bankruptcy has been filed, do not give the mini-Miranda for debts included in the case.
- If you accept voluntary payment, do not set up a plan or suggest that more payments are expected.
Documents and Crowdsourced Materials:
Top Reads:
Upcoming Webinars/ Other Announcements:
- Upcoming Webinar: RA Compliance Corner: Fighting Fraud in 2025 on September 4 at 2PM Eastern. Register here.
- Important Announcement: All AI Notetaking Bots will be removed from Research Assistant Peer Group Meetings. This is to maintain the confidentiality of our peer members.
- Have topics you want to discuss during the peer call? Please send them to Sara_Consultant@roundtables.us by Thursday to ensure it makes it on our agenda!
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