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Ruling on post-bankruptcy loan modification benefits borrowers

On Behalf of | Mar 1, 2017 | Firm News, Loan Modification vs. Bankruptcy

Florida residents overwhelmed by debt may choose bankruptcy as an option in getting a fresh start with their finances. Several issues arise when a loan modification is sought following a bankruptcy discharge. A recent ruling by a judge in the nation’s Bankruptcy Court may make the situation more difficult for lenders in this situation.

The ruling came after a case involving a physician and his wife who had filed for Chapter 7 bankruptcy several years ago. The physician had previously entered into several finance agreements with lenders for equipment used in his practice. At that time, he guaranteed his medical practice’s obligations with these agreements. The guaranty obligations were listed in the physician’s bankruptcy petition. The bankruptcy case was closed after he received a discharge of all debts, including the guaranty obligations.

For several years, the physician remained current with his practice’s finance agreements. However, the physician later requested forbearance when his medical practice defaulted on the agreements. The lender agreed to lower payments and extended repayment terms when the physician and his wife agreed to guarantee the practice’s obligations. When the practice later defaulted on the forbearance agreement, efforts were made by the lender to reopen the bankruptcy case.

The lender argued that since the bankruptcy case had been closed for five years, payment of the new guaranties would not violate the Bankruptcy Code. The physician and his wife contended that their guarantee agreements were not enforceable. The United States Bankruptcy Court for the Eastern District of North Carolina agreed with the lender regarding the physician’s wife in that she had not been discharged of the practice’s debt. However, the Court upheld the decisions made regarding the original discharge of the physician’s debts.

An attorney familiar with bankruptcy laws can help Florida residents in similar situations to determine their best course of action. Filing for bankruptcy or seeking a loan modification following bankruptcy can be complicated, as evidenced in the physician’s case. Experienced lawyers can provide advice to help their clients regain control of their finances and avoid potential problems in the process.

Source:, “Lenders Seeking Loan Modification After Bankruptcy, Beware!“, Paul Fanning, Norman Leonard, Feb. 16, 2017

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