Personal Loans in Bankruptcy
If you're considering bankruptcy as a way of eliminating your debt, you're probably interested in knowing what happens to personal loans in the bankruptcy court.
In many cases, personal loans can be included in a bankruptcy filing. To get the facts and advice about your unique situation, connect with a bankruptcy attorney. Simply fill out the free case review form below to arrange a no-obligation consultation.
What Happens to Personal Loans in Bankruptcy?
The majority of personal bankruptcy petitions filed with the court are filed under either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. Personal loans are treated differently in the two types of personal bankruptcy.
Many types of personal loans, including payday loans, credit card loans, bank loans and loans from family or friends, can typically be included in a personal bankruptcy filing.
- Chapter 7 bankruptcy: Also known as "liquidation," this type of bankruptcy offers filers a complete discharge of many or most of their unsecured loans. What that means is that loans that are not attached to any property (including personal and payday loans) may be entirely excused by the bankruptcy court, depending on the filer's resources. Secured loans (like car loans) can either be redeemed (paid off), renewed (continued as usual) or surrendered (the property attached to the loan is given back to the creditor and the filer stops payments).
- Chapter 13 bankruptcy: Also known as "reorganization," this type of bankruptcy lets filers catch up on late payments while staying current with other payments by reorganizing their debts into a three- to five-year repayment plan. At the end of the repayment period, Chapter 13 filers who have stayed up to date on all their payments may have their remaining unsecured debts discharged (that is, forgiven).
What Types of Personal Loans Cannot Be Discharged in Bankruptcy?
Whether you file for Chapter 7 or Chapter 13 bankruptcy, some types of personal loans cannot be discharged by the court, which means you’ll be responsible for paying them. If you're mainly burdened by one of these types of loans, bankruptcy protection may not be the best solution to your financial woes.
- Child support: Because these payments help maintain the well-being of a child, you are responsible for making them even if you file for bankruptcy.
- Student loans: Only filers who can prove that paying their student loans would cause undue hardship can expect to have student loans discharged. But there are other ways to deal with student debt, including negotiating with your creditors and applying for deferment or forbearance.
- Tax debt: Any money you owe the federal or state government will remain after filing for bankruptcy.
- Court orders: Fees and fines (including those for DUIs and similar convictions) cannot be discharged by a bankruptcy filing. If you’re unable to make payments on a court order, consider consulting your lawyer.
Find Out Whether Your Loans Can Be Discharged in Bankruptcy
Not sure whether you could benefit from the protection offered by filing for bankruptcy? Consider consulting a bankruptcy attorney practicing near you to determine your course of action.