The truth is, in a Chapter 7 bankruptcy most filers will see most of their unsecured debts discharged. But it’s natural to have questions about the different types of debt you’re carrying and how they may be handled by the court if you file for bankruptcy.
What is a Personal Loan?
A personal loan is money you borrow from a bank, credit union, or an online lender. The debt is then paid back in installments. These types of loans may be unsecured or secured.
Unsecured loans aren’t backed by collateral. If you’re unable to qualify for a loan based on your credit, the lender may have requested a pledge of an asset — like your home or car — to protect their interests in the event of a default.
Most people use personal loans for home improvement projects, weddings, vacations, large purchases, medical bills, or debt consolidation.
Perhaps the most personal type of personal loan is money you’ve borrowed from a family member, friend, or even your employer. Even these types of private loans fall into the categories of debt that can be addressed as part of a bankruptcy filing.
Payday loans are also a type of personal loan. These “fast cash,” predatory loans are also referred to as cash advances, check advance loans, or short-term loans. They usually have very high interest rates. The lender usually requires the borrower to write a postdated check that will be deposited on the agreed upon date.
If you have payday loans, it’s important to speak to a qualified Riverside bankruptcy specialist because payday loans are more complicated in a bankruptcy proceeding than other types of personal loans.
Do You Have to List All Your Personal Loans in a Chapter 7 Bankruptcy?
One of the hallmarks of the law is fairness. And that applies to the bankruptcy court as well. Since your creditors stand the very real chance of not being paid back for the credit they extended you, the court doesn’t allow you, the bankruptcy petitioner, to decide who gets paid and who doesn’t.
You will need to inform your attorney of all your personal loans. This will be part of a complete list of your secured and unsecured creditors, including any personal friends or family members you owe money to.
- Secured creditors hold a debt that is guaranteed by collateral, like a car or your home, that the creditor is allowed to take if you fail to make the agreed upon payments. You may elect to reaffirm these obligations so you can keep the pledged collateral and continue making payments.
- Unsecured creditors don’t have any rights to repossess your assets and have to file a lawsuit to get a judgment against you so that they can collect what is owed them. Typical unsecured debts are credit card debt and medical bills. Both these types of debt are generally
It’s essential that you get your list of creditors prepared correctly. If you make any mistakes, you could delay the process or even worse, you could remain obligated to pay omitted creditors after you are granted your discharge.
Plus, as soon as the clerk of the bankruptcy court receives your petition, you are granted an automatic stay. The clerk issues notices to all your creditors and their collection efforts must cease during your bankruptcy proceedings.
Since there can be strict timelines and other restrictions on bringing an action in bankruptcy court in the event of an error, you want to make sure you get it right the first time you file. Speaking with a local bankruptcy attorney who is familiar with state and local bankruptcy law as well as the local Trustee, will ensure you get the full relief under the bankruptcy code.
What Happens to My Personal Loans When I File Bankruptcy?
It is likely that your unsecured personal loans will be discharged as part of your bankruptcy case. For most people, nearly 95% of their debts are wiped out in a Chapter 7 bankruptcy.
For secured debt, you have the option of reaffirming your debt. Basically, you agree to continue with the same existing terms of possibly, more favorable new terms with your creditors, and you will be allowed to keep and enjoy your possessions as long as you continue to make payments as agreed.
If you were having problems keeping up with your house or car payment, being relieved of your credit card obligations or medical bills may free up enough money each month making it easier to get back on track with your secured loan payments.
Those private personal loans can be a little trickier. If you decide that you don’t want to pay Aunt Mary back the $5000 you borrowed from her, you won’t be obligated after that debt is discharged as part of your bankruptcy. But it may make family dinners and holidays a little awkward. But rest assured, you can always voluntarily make payment arrangements with Aunt Mary once your financial situation improves and the bankruptcy has concluded.
A Note on Payday Loans and Bankruptcy
In many cases, filing for bankruptcy can help payday loan borrowers if they can’t repay the advances that were taken against earnings. By filing Chapter 7 bankruptcy, you’re granted an automatic stay that immediately halts the collection efforts of payday lenders.
And if your payday loans are discharged as part of your bankruptcy, you won’t be obligated to repay them.
Except that payday loans can get tricky. Most lenders who offer these types of loans will tell you these debts are not discharged in bankruptcy. This is typically not true, but it depends on how recently you took out a payday loan.
To determine the best course of action, and to figure out which payday loans you may remain obligated to repay, you’ll need to get good legal advice.
A complete review of your financial situation can help you make the right choices about whether filing for bankruptcy is the right choice for you and your family.
A Bankruptcy Firm You Can Trust, Right Here in Riverside
If you believe Chapter 7 bankruptcy could be right for your financial situation, contact Janus Law right now. We have offices in Mission Hills and Riverside.
There is no charge to speak to a Certified Bankruptcy Specialist about your situation and you’ll have a better understanding of what can be done to become debt-free.
Don’t wait another minute to take control of your money, wipe out personal loans, and eliminate debt.
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