Personal loans are now a nearly unavoidable part of our lives. However, sudden financial troubles can make your loan temporarily unpayable. So, are personal loans dischargeable? Yes, the personal loans are dischargeable. You can avail of it by filing a bankruptcy court case.
Here, our top banking experts show you how to get a discharge from personal loans.
How Are Personal Loans Dischargeable
A personal loan is fully dischargeable if you get a court decision in favor after filing for bankruptcy under Chapter 7.The court hears your side of the story and checks your evidence if you are really unable to pay. If the court is convinced that you cannot repay the borrowed amount and are already struggling with your current expenses, you might get favorable decisions. Following this, you get discharged from the borrower’s responsibility.
You need to consult your lawyer about your personal loans to make things right. After representing your position on the court, there might be two outcomes.
For Unsecured Personal Loans
If the court decides in your favor, then you have no responsibility to pay back the loan.
For Secured Personal Loans
These loans are problematic as you must provide collateral while signing the loan agreement. In this case, you might have secured the loan by providing a guarantee like a home, car, etc. It happens when you have a low credit score or bad credit history,
Revoking Property:
In this case, your repaying inability gives the bank or financial institution the right to revoke your respective property as a loan recovery. Hence, you may keep paying back the secured loans to keep your car or house. But for unsecured loans, the court decides how much you need to repay. Also, there is a higher chance that you will get a rescheduling of the payment.
Lawyer Consultation:
However, while listing all the debts, we suggest you repeatedly check that not a single debt is missed. It is really important to let your lawyer know all the debts. If you make a mistake, it could slow down the bankruptcy process, or you might still owe money to some lenders even after your bankruptcy is finished. Reporting personal loans on tax filings is a concern for many.
Automatic Stay:
Here is another good news for you. When you file for bankruptcy, a legal term called “automatic stay” becomes activated. So, your creditors cannot collect money from you during the bankruptcy process. The reason behind this is that bankruptcy has strict rules and timelines.
Finally, we strongly recommend you get an experienced and skilled lawyer to get everything right the first time you file. Speaking to a local bankruptcy lawyer who knows the rules in your area will help you get the full benefits of bankruptcy protection.
Stepwise Guide to File Bankruptcy
Below is the step-by-step guideline for filing a bankruptcy to get discharged from a personal loan.
Step 1: Gather all your financial records, like income statements, tax returns, and credit reports.
Step 2: Consult with a local lawyer about your financial situation and your intention to file for bankruptcy. Be clear with your lawyer; do not hide anything. Tell about every debt you have and assets as well. Also, be honest to inform your actual financial condition. Any misinformation can misguide the lawyer, and you may lose the case.
Step 3: Fill out the bankruptcy application form carefully; we highly recommend you take the lawyer’s support and consultation while filling out the form.
Step 4: Make the necessary arrangements to cover the bankruptcy filing fees. For a Chapter 7 bankruptcy, this fee amounts to $338.
Step 5: Do a thorough and final checkup of the bankruptcy file and also enclose required items like paycheck stubs, any local forms, etc.
Step 6: In most cases, your attorney will visit the local court and file for bankruptcy. Be sure to obtain your bankruptcy case number, details about your bankruptcy trustee, and information about the “341 Meeting,” including its date and time.
Step 7: If necessary, be prepared to send your bankruptcy file by mail, as instructed.
Step 08: Attend the meeting with your bankruptcy trustee, typically known as the “341 Meeting.” After several hearings, you will get a decision from the court about your bankruptcy file.
Final Words
So, are personal loans dischargeable? We hope now you have a very clear answer to the question. By filing for bankruptcy under Chapter 7, you can get released from the responsibility of paying the loan.
However, we would like to inform you that there is another chapter is also available to file for bankruptcy: Chapter 13. However, the issue is that you have to pay back the loan as per the ordered schedule from the court