Legal Question in Bankruptcy in California

Disposition of Installment Debt OWED TO Bankrupt Lender

B borrows money from L, with the loan to be repaid over a term of several years. During that period, L (*not* B) files for bankruptcy. Does the loan balance become due immediately (or would a bankruptcy court typically cause it to become due immediately)? Is there any ''standard'' sort of protection that B might reasonably have negotiated in his loan to prevent that burden?

This is a semi-theoretical question. Associates are contemplating an installment debt with someone who might be on the verge of bankruptcy.

Thank you.


Asked on 1/08/02, 8:35 pm

1 Answer from Attorneys
Robert Miller Robert L. Miller & Associates, A Law Corporation

Re: Disposition of Installment Debt OWED TO Bankrupt Lender

Thanks for your posting. The answer to your question, as with much of law, depends.

What does it depend on? Well, it depends mainly on the financial situation, as reflected in a bankruptcy petition, of the entity or person declaring bankruptcy.

It also depends on the TYPE of bankruptcy, to some extent.

It also depends on the TIMING of the loan. A trustee has "reach" to take back certain payments within certain time periods.

In GENERAL, however, for the most part, the terms of the original loan will apply. In other words, if the lender agreed for you to pay $100 a month over five years, then the bankruptcy trustee will honor that agreement from you (even if the income might be used to pay creditors), rather than face a breach of contract lawsuit if they decide to change the terms of the agreement.

My suggestion is to make sure you get the loan agreement in writing -- that alone saves a lot of problems.

If you want more information, or have other questions, please feel free to call my office at 877-568-2977 (toll free), or email me.

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Answered on 1/08/02, 8:52 pm


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