As a general rule, when you file for Chapter 7 bankruptcy, debts that were incurred before you filed (called pre-petition debts), are discharged and the debts that were incurred after you filed (called post-petition debts), are not. As a result, you are obligated to pay most post-petition debt. But determining whether debt is pre-petition or post-petition is not always easy.
Here's a primer on which debts are considered to be pre-petition and which are post-petition in Chapter 7 bankruptcy.
(Find more articles on Chapter 7 Bankruptcy, including articles on your debt and property in Chapter 7.)
Mortgages, Car Loans and Other Secured Installment Debt
Although payments on these types of debts are usually due monthly, both before and after you file for bankruptcy, since the loan was incurred pre-petition, the entire debt is considered to be a pre-petition obligation.
When you obtain your discharge in Chapter 7, you are discharged of any personal liability for these types of debts. But the discharge does not remove the lien on the property that is collateral for the loan (such as the house or the car). If you don’t make the monthly payment, the creditor can still foreclose on the house or repossess the car after the bankruptcy. However, they are not entitled to obtain a money judgment against you. (Learn more about what happens to secured debt in Chapter 7 bankruptcy.)
After you file for Chapter 7, creditors may contact you with a request that you reaffirm certain debts. In most instances these will be mortgages, car loans or other secured debts. Whether or not you are required to reaffirm a debt in order to keep the property which secures the debt may depend on the law and procedures in place in your area.
If you do reaffirm a debt, you are reinstating your personal liability for that obligation. This means that if you stop paying later, the creditor can take steps to recover its collateral and to sue you for any deficiency (the difference between the amount you owe and the amount the creditor is paid through the recovery and sale of its collateral). (For details, see Nolo's Reaffirming Secured Debt in Chapter 7 Bankruptcy.)
Leases are also pre-petition obligations as long as you signed the lease agreement before you filed for bankruptcy. However, it may be necessary for you to "assume" the lease to stay in possession of the leased property post-petition. When you assume a lease, you will need to pay all unpaid past due lease payments and make all remaining payments as they come due. (Learn more about assuming leases in Chapter 7 bankruptcy.)
Courts are divided on the effect of lease assumption on your personal liability in the event that you stop making the lease payments after your have assumed the obligation. Some courts find that the creditor is only entitled to take back its property while other courts find that you can personally be sued for the payments due under the lease.
Homeowners and Condominium Association Fees
A Chapter 7 bankruptcy will discharge you from personal liability for any monies due to your homeowners or condominium association pre-petition. You remain responsible however for any money which comes due to the homeowners or condominium association after the date you filed your bankruptcy petition. This is true even if you surrender the property in the bankruptcy. You are responsible for post-petition fees and assessments that come due to the association while the property is titled in your name whether or not you gave notice of an intent to keep or surrender the property in your bankruptcy.
Debts Incurred Between the Date You File your Chapter 7 Petition and the Date You Obtain a Discharge
Any new debt that you incur after you file your bankruptcy petition is not discharged in the bankruptcy and remains your personal obligation even if it is incurred before you obtain your discharge. The discharge only applies to debts that existed in some form on the petition date.
To find out more about what happens to your debts in Chapter 7 bankruptcy, see our Your Debt in Chapter 7 Bankruptcy area.