Recently I was talking to one of our
client's creditors on the phone about our client's case. Our client had filed bankruptcy in Nashville. The
creditor was trying to explain to me that their debt was not to be
included in the bankruptcy because they have their borrower's check a
box on the loan application that states that the borrower waives
their right to include the debt in bankruptcy and that the debt would
be non-dischargeable. I quickly reassured this creditor that such
contract provisions are prohibited by the Bankruptcy Code and 6th
Circuit case law.
There are only two avenues which allow
a debtor to waive a debt's discharge in bankruptcy. The first is
through a reaffirmation agreement through §524.
A reaffirmation agreement is a post-petition contract entered into
by the debtor and creditor wherein a debtor will reaffirm the debt
and waives its discharge in the bankruptcy. The reaffirmation
agreement, however, is only valid after being approved by the
bankruptcy court judge and meeting other strict conditions.
The
second way a debt passes through discharge is through §727(a)(10),
which states that the court shall grant a discharge of the debtor's
debts unless “the court approves a written waiver of discharge
executed by the debtor after the order for relief under this
chapter.” This waiver of discharge is unilateral and does not need
to be agreed upon by the creditor, however, it still requires court
approval.
These
two methods of waiving discharge have two things in common: (1) both
require court approval and, (2) both must be entered into
post-petition.
The
6th
Circuit Court of Appeals in 2005 interpreted these two provisions
to conclude that any prepetition agreements which waive the discharge
of a debt contradict the Bankruptcy code and are void because they
offend the public policy of promoting a fresh start for individual
debtors. Lichtenstein v. Barbanel, 161 Fed. Appx. 461 (6th Cir. 2005). Therefore,
in order for any waiver of discharge to be valid it must be through
either §524
or §727
and cannot be merely waived by the checking of a box on a loan
agreement.
Please remember that a debtor who enters into a loan agreement with no intention of paying the money back, but to file bankruptcy instead, can be prosecuted for fraud.
It
must also be noted that a prepetition stipulation can waive the discharge
of certain debts, but that is a totally different animal than
contractual waiver agreements. For an in depth discussion of this
topic please see Line Drawing and the Bankruptcy Discharge: Why Prepetition Stipulations Are Enforceable but Prepetition Waivers Are Not by Kristin Ballobin.
