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    Can A Personal Loan Be Included In Bankruptcy?

    Personal Loan Included In Bankruptcy

    Some individuals may find themselves overwhelmed with debt and unable to pay creditors. This can be an incredibly stressful situation and often leaves people with very few options. For those wondering can you file bankruptcy on loans, the answer isn’t so black and white. Read more to learn how personal loans may be discharged and what you need to know.

    What Is Loan Discharge?

    Dischargeable debt releases a borrower from existing debts in the case of bankruptcy. This means, if you get a bankruptcy discharge, there are certain kinds of debts that can be wiped out. Once you receive your discharge, you’re no longer obligated to repay debts. Additionally, collectors are rendered unable to come after you for them. However, dischargeable debt doesn’t include every kind of debt. Taxes, alimony, and child support aren’t considered types of debt that can be discharged. 

    Filing bankruptcy on loans can get a little complicated. Personal loans also fall under the category of dischargeable debt if they were borrowed from friends, family, or employers. For people dealing with extreme debt issues, discharging debt might be the last remaining option. Of course, this is pursued only if all other reductions and relief methods were pursued and failed.

    The Types Of Personal Bankruptcy

    Bankruptcy occurs when individuals undergo a legal process to seek relief from debts they’re unable to pay. Bankruptcy is granted through an official court order. However, it’s not as easy as waving a wand and seeing your debts disappear. Bankruptcy is a serious legal process with consequences and obligations that’ll stay with you for years to come.

    There are two common types of personal bankruptcy options, Chapter 7 and Chapter 13. Depending on your current financial status and assets, the court may deem either Chapter 7 or Chapter 13 as your only option. 

    In Chapter 7 bankruptcy, the court appoints someone as the trustee to sell off your assets. Money from those assets is then used to pay your debt, or at least some of it, to whatever creditors exist. These assets can range widely and include your home, car, and even your pension. The process of discharging your debts typically takes four months after proceedings begin.

    Chapter 13 bankruptcy works differently than Chapter 7. With Chapter 13, you’ll commit to repaying a portion of your debt over the course of a specified period of time. This usually spans over three to five years. This allows you to hang on to your assets while you repay some of your debts. At the end of the agreed-upon period, the remaining amount of your debts will be discharged. 

    What Personal Loans Can Be Discharged From Bankruptcy?

    Types of dischargeable debt include credit card charges, medical bills, late utility bills, civil court fees, and so forth. Dischargeable debt might include student loan payments, business debt, or even money owed on your lease agreement.

    Some personal debts are more difficult to get discharged. These might include: 

    • Student loans are infamously difficult to get discharged through bankruptcy. Although, you might be able to get it partially reduced 
    • Income tax debts aren’t discharged unless you can obtain a special exemption. This isn’t easy to achieve 
    • Keep in mind that creditors may be able to stop specific debts from being discharged, leaving this out of your control

    What Personal Loans Are Ineligible For Inclusion in Bankruptcy?

    If you expect all of your debts will be discharged after filing for bankruptcy, think again. Certain debt types are ineligible to be discharged. These include: 

    • Debts related to death or personal injury such as accidents that occurred from a DWI
    • Child support and alimony 
    • Any debts that you may have forgotten to include when you filed for bankruptcy
    • Some types of taxes like tax liens 
    • Any debts that you have accrued from malicious injury to another person or property 

    What Happens To Loans That Aren't Included In Bankruptcy?

    Depending on the type of bankruptcy that you file for and what debts you have that are ineligible to be discharged, you may still be left with a considerable amount of money owed.

    This can be dangerous as those loans may continue to add up in interest and late payment fees. Loans for people in bankruptcy are difficult to come by, especially since your credit score will greatly suffer.

    To avoid detrimental damage to your credit, reach out to a financial advisor. This will greatly help you if you’re stuck in an endless cycle of debt.

    It’s possible that some personal loans have exceptions that an expert may be able to include in your bankruptcy filing.

    Otherwise, you’ll need help coming up with strict repayment plans. Additionally, you’ll need guidance in understanding your options. 

    Bottom Line

    If you’re considering filing for bankruptcy, you’ll want to do your due diligence to understand what loans and debts will be included. It could be that bankruptcy isn’t your best option, especially since personal loans for bankrupts are hard to come by. 

    Make sure to understand whether you qualify for Chapter 7 or Chapter 13 bankruptcy. Moreover, remember to consider all of your options when trying to get back on a solid financial footing.