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Let's imagine that Bob Jones had promised to pay a local garage $900 for work done on his car.  Unfortunately, Bob Jones was overloaded with debt, and he couldn't pay off the amount he owed to the garage.  Eventually, Bob was forced to declare bankruptcy. He hired a bankruptcy lawyer to represent him, and after the proceedings were over, the bankruptcy court discharged all of his debts.

Nevertheless, Bob had for a long time had a good relationship with the local garage, and he felt uncomfortable that the garage never got paid.  Accordingly, one day when he was at the garage to get his brakes fixed, Bob spoke to the garage owner. Bob told him he was sorry for having to declare bankruptcy, but that he just had far too much debt to pay. Furthermore, he told the owner: "I never intended for you not to get your money. Accordingly, I pledge that I will pay you the full amount owed, just as if I had never been in bankruptcy."

However, after making this promise, Bob never discharged any of his debt. Finally, the owner brought suit against Bob for the amount owed.  Who will the winner be?

 Can the Garage Enforce This Debt?

In most states, the garage owner would prevail.  The court canceled the enforcement of the amount owed, but it never erased the moral responsibility to pay the amount owed. For this reason, courts have generally held that the former debt coupled with the moral obligation to pay is sufficient legal consideration to support the new pledge to pay. Other courts have said that in such situations the new promise revives the old debt that had been made unenforceable by the judge.  To put it another way, the moral right continued to exist, only the remedy had been barred by the court.

In fact, it's a hallowed principle of contract law that an earlier obligation is adequate consideration for a subsequent pledge to pay that debt.  This legal rule applies not only to bankruptcies, but also to debts that are barred from enforcement by statutes of limitations.

 

Tags: bankruptcy court, bankruptcy law, bankruptcy lawyer, debt, statute of limitations