Let’s take a hypothetical situation: Imagine that Tom Smith owed a local hardware store $875 for some fertilizer and various supplies. Sadly, Tom Smith was overloaded with a lot of debts, and he was unable to pay the amount he owed to the hardware store for the items he had purchased. Before long, Tom decided to declare bankruptcy. So he went about finding a good attorney. After finding a good bankruptcy attorney, Tom filed for bankruptcy. Once the proceedings were completed, the bankruptcy judge wiped out all of Tom’s debts.
Nevertheless, Tom had for a long time been on good terms with the local hardware store, and he felt bad that the hardware store had never been paid. So one day when he was at the hardware store to purchase some nails, Tom talked to the store owner, Jim Matthison. Tom told Jim he was sorry for having to declare bankruptcy, but that he just had far too many debts to pay. However, he told Mr. Matthison: “I never intended for you to get stuck. So I promise to pay you the full $875, just the same as if I had never declared bankruptcy.”
Well as it turned out, Tom’s finances never got any better. So although he promised Jim that he would pay him, Tom actually never paid anything on the debt. So after ten months, Jim, the store owner, employed an attorney himself. He then sued Tom for the entire $875 he had promised to pay. Once the case was heard by the court, guess he won: Tom, the debtor, or Jim, the hardware store owner?
Can the Hardware Store Enforce This Debt?
In most states, Jim, the hardware store owner would prevail. The judge would probably rule that the bankruptcy court barred the enforcement of the debt, but it never erased the moral obligation to pay the debt. Therefore, the judge would rule that the actual debt, coupled with the moral obligation to pay, is sufficient consideration to support the new promise to pay.
In some states, courts have said that in cases such as this, the new pledge made by Tom revives the old debt he originally owed to Jim, the hardware store owner. To put it another way, the moral right continues to exist. The bankruptcy court merely had barred the remedy to collect the debt.
This is all consistent with a long-standing principle of law that an earlier debt constitutes sufficient legal consideration for a subsequent promise to pay that debt. This legal rule applies not only to bankruptcies, but also to debts that are barred from enforcement by the statute of limitations. In most states, a creditor has four years to sue on a debt that is past due. If he waits ten years, he can no longer legally collect the debt. However, after ten years, if the debtor makes a new promise to pay the old debt, then the new promise is enforceable.
John Allen Farrer, is a retired attorney who writes extensively on various legal issues. He recently wrote a helpful report on finding lawyers, the title of which is “How to Find a Good Attorney.” For a limited time, you can receive a free copy of this report by going to his website, Finding the Best Lawyers