I. Revival of Released Claims

• Author: Roderick J. Wood
• Profession: Faculty of Law. University of Alberta
• Pages: 301-303

Page 301

An agreement by the debtor to waive the benefit of the bankruptcy discharge is unenforceable, since it violates the fresh start policy of bankruptcy law.¹⁶⁵For this reason, a debtor cannot revive a discharged debt by giving the creditor a promissory note following the discharge.¹⁶⁶

However, a revival of a claim released by a bankruptcy discharge can be effected if the creditor gives fresh consideration for the promise to pay the discharged debt.¹⁶⁷The fact that the new promise to pay is on easier terms than the original obligation is not sufficient, since the original obligation is extinguished by the discharge. The fresh consideration requirement is satisfied if the creditor advances new credit to the debtor on the condition that the debtor also pays the discharged debt. A post-bankruptcy agreement for the revival of a debt that is supported by new consideration will not be enforceable if its effect is to undermine the integrity of the bankruptcy as a collective proceeding for the benefit of all the creditors. Courts have therefore invalidated secret side deals

Page 302

under which a debtor agrees to pay a pre-bankruptcy debt if a creditor agrees not to object to the debtor’s discharge.¹⁶⁸It is not uncommon for a debtor to continue to make payments to a secured creditor after the debtor obtains a discharge. A debtor will frequently do so in order to retain the property and prevent the secured creditor from repossessing it. The problem arises when the debtor subsequently defaults and the secured creditor repossesses the property. After disposing of the property, the secured creditor may also seek to sue the debtor for any deficiency. Ordinarily, the secured creditor would be unable to sue the debtor for the deficiency since the debt would have been discharged. However, the result would be different if there had been a post-bankruptcy agreement between the secured creditor and the debtor under which the debtor agreed to revive the discharged debt and the secured party agreed not to repossess the collateral. A similar controversy arises in connection with a lessor’s action to recover damages for breach of a lease of goods following a post-bankruptcy continuation of the relationship.

Canadian cases have permitted recovery by secured creditors and lessors under these circumstances.¹⁶⁹A difficulty with these decisions is that they do not employ the concept of a new post-discharge contract described above but are instead based on the...