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Federal Bank is a secured party on a $50,000 loan to Gigi, who owns Home HealthCare, an assisted living facility. When Gigi experiences financial difficulty,

Federal Bank is a secured party on a $50,000 loan to Gigi, who owns Home HealthCare, an assisted living facility. When Gigi experiences financial difficulty, creditors other than Federal Bank petition her into involuntary bankruptcy. The value of the secured collateral has substantially decreased in value. On its sale, the debt to Federal Bank is reduced to $25,000. Gigi's estate consists of $100,000 in exempt assets and $20,000 in nonexempt assets. After the bankruptcy costs and back wages to Gigi's employees are paid, nothing is left for unsecured creditors. Gigi receives a discharge in bankruptcy. Later she decides to go back into business. By selling a few exempt assets and getting a small loan, she is able to buy Indulgence, a small, profitable nightclub. Gigi goes to Federal Bank for the loan. The bank claims that the balance of its secured debt was not discharged in Gigi's bankruptcy. She signs an agreement to pay Federal Bank the $25,000, and the bank makes a new unsecured loan to her. Is Federal Bank correct that the balance of its secured debt was not discharged in bankruptcy? What is the legal effect of Gigi's agreement to pay the bank $25,000 after the discharge in bankruptcy?

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