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Bankruptcy Liability Discharge: In Personam vs. In rem. PART I of II

By Michael Doan on Mar 9, 2008 in Bankruptcy Myths, Bankruptcy Practice and Procedure, Chapter 12 Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Collection Issues, Consumer Protection, Debt Collector Abuses, Discharge Violations, Discharge, What Can and Cannot Be Forgiven, General Bankruptcy Information, Life After Bankruptcy

What the heck does that mean? Sounds like Latin. Well, it is. And it is the this very threshold foundation of Bankruptcy that sometimes confuses people the most. When one gets a discharge, what exactly does that mean?

In its most basic sense, a Bankruptcy Discharge removes the personal liability of the underlying legal obligation. Sound simple? Well, lets look at the exact statute. Specifically, 11 USC 524(a)(2) provides as follows:

A discharge in a case under this title operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived;Notice the keyword “personal liability of the debtor.” This terminology has specific legal meaning. Personal liability is personal to the debtor. It is not personal to the debtor’s cosignors, friends or family. It is also not personal to the property of the debtor.

“In personam” is Latin and means “against a person,” as opposed to the other Latin term “in rem” which means “against property.” So while a discharge prevents the underlying debt from ever being collected against the debtor receiving a discharge, it does not prevent the collection against property if a lien existed prior to the Bankruptcy. Bankruptcy eliminates in personal liability. It does not eliminate in rem liability. Tell that at the next cocktail party and now people will mistake you as a lawyer!

Because Bankruptcy does not eliminate in rem liability, liens continue despite a bankruptcy. Otherwise, everyone with a mortgage on their home, car loan, and other personal liens would be filing bankruptcy to eliminate those debts as well.

So many times I see debtors that think they can remove their car loans or mortgages in Bankruptcy. NOT! While in some cases, those loans may be modified, they are very rarely removed(but on occasion, maybe 1 out of every 300 cases, they can be removed…….this is an entirely separate area dealing with preferences, perfection, fraudulent conveyances, etc).

Want more? Think you have your Latin terms “in personam” and “in rem” mastered? Go to the next level and read about it in Part II of this blog.

Written by Michael G. Doan