Pursuant to the U.S. Bankruptcy code, subsequent to a debtor filing a chapter 7 or 13 bankruptcy, they are unable to obtain another discharge of unsecured debt for 8 years. As such, many debtors believe they have no way out of new debt incurred. This could not be further from the truth. There is substantial statutory and case law that suggests a right to negotiate in good faith with creditors. Moreover, creditors must partake in the interactive process.
It has long been held that if a creditor has no agreement for acceleration of an entire obligation upon default, the creditor may not accelerate a debt unless the debtor's default rises to the status of an anticipatory repudiation.
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The Uniform Commercial Code ("UCC") § 1-309 provides that a term allowing an acceleration of payment or performance or additional collateral at will, or when the creditor or the creditor's successor in interest deems himself insecure, and language of similar import, will be construed to mean that the creditor has the power to do so only if he in good faith believes that the prospect of payment or performance is impaired. Section 1 - 309 has been increasingly applied to real estate transactions. (good faith itself does not give rise to an action)
Section 201 of the Bankruptcy Reform Act can be construed as a model to require creditor's to negotiate in good faith with debtor's prior to filing any legal action to collect the debt. It would have amended Section 201 proposes to allow a bankruptcy judge to reduce a creditor's claim by up to 20% if the creditor had "unreasonably refused to negotiate a reasonable alternative repayment schedule.
Perhaps the most relevant and significant factor pointing to a strong suggestion if not requirement for creditor's negotiating with debtors stems from litigation itself. At a clerk or magistrate's session in small claims court prior to appearing before a judge, the magistrate will almost always offer free mediation services provided by the court, and in many cases go so far as to require the Plaintiff and Defendant to attend a non-binding mediation session prior to appearing before the District Court Judge.
The gist of the forgoing would seem to indicate that a debtor is not without recourse even if they have filed for bankruptcy and obtained a discharge on unsecured debt within the past eight (8) years. In many case, it may be a good idea to still speak with a bankruptcy attorney or credit counselor to garner assistance in proposing a workout plan with one's creditors.
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