Bankruptcy and Promissory Notes: Can a Promissory Note be Discharged?

Bankruptcy and promissory notes can be a complicated matter. When you decide to file for bankruptcy, you are required to disclose all your debts including any promissory notes.

Just to be clear, a promissory note is a legal and binding contract or agreement between two or more individuals to repay a debt according to specified conditions. In most cases, the promissory note includes a time frame in which the debt or loan must be paid as well as agreed upon terms pertaining to the payoff. Some promissory notes can include what is called an “acceleration clause.” This means the debt balance must be paid in its entirety if payments are not made regularly and on time as outlined in the original agreement.

Promissory notes come in many forms. One can pertain to a mortgage. In some cases the remaining debt of a mortgage promissory can be discharged under Chapter 7 bankruptcy. If there is currently a lien against the property, the promissory note may not be eligible for discharge under Chapter 7. If the individual filing for bankruptcy loses the property due to foreclosure, the bank or mortgage lender maintains the right to sell the property to recoup their losses. If this occurs, the mortgage lender cannot pursue the individual for debts owed on the property.

Some promissory notes state terms of discharge due to bankruptcy. Promissory notes can contain a clause which states it can be “erased” in the event of bankruptcy. It is an individual’s Constitutional right to file for bankruptcy; therefore, an individual cannot take away that right in a contractual agreement. Promissory notes that contain the erasure clause can still be discharged under bankruptcy.

For more information on Chapter 7 and Chapter 13 bankruptcy, please contact the experts at Chris Wesner Law Office. The attorneys at Chris Wesner Law Office can guide you through the bankruptcy process to ensure the best possible outcome for your bankruptcy.

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