Can You File Bankruptcy for Personal Loans?

• Types of debt and bankruptcy vary

• Many personal loans can be discharged

• Some debts will not be erased

When bankruptcy seems like the only way through, you’ll likely have a lot of questions. And whether you opt for chapter 7 bankruptcy or chapter 13 bankruptcy, a big question will be whether you can discharge, or eliminate your personal loans as part of the filing process. 

At Hausen Law, LLC our Northeast Ohio Bankruptcy Attorneys can help. We’re here to tell you that yes, many personal loans can be wrapped into your Ohio bankruptcy filing. But, as always, there are exceptions and details to discuss. We’ll get you up to speed and ready to move forward.

Types of Bankruptcy Filing

First off, let’s make sure we’re on the same page regarding which type of bankruptcy you should file. Chapter 7 bankruptcy is typically referred to as liquidation. That’s because the trustee assigned to your filing will sell off your non-exempt assets in order to pay creditors. If you’re looking to keep assets but just combine payments and possibly reduce owed sums, chapter 13 bankruptcy is typically the way to go. This type of bankruptcy is also called reorganization. There are other details about each of these bankruptcy types that we get into elsewhere. But now that you know which angle you’re coming from, let’s find out about those personal loans and whether they’re impacted. One clue is whether debts are secured or unsecured.

Discharging Personal Loans in an Ohio Bankruptcy

If you’re filing for chapter 7 bankruptcy, personal loans that are for unsecured debt – meaning there is no collateral for the debt, like a house or car – are generally wiped clean. These types of loans or debts might include:

• Personal loans from friends, family, or employers
• Credit card charges
• Accounts from collection agencies
• Medical bills
• Past due utility bills
• Dishonored checks
• Civil court fees (if not deemed fraudulent)
• Business debts
• Money owed for lease agreements
• Certain attorney fees
• Revolving charge accounts
• Social Security and veterans assistance overpayments

A discharge of these debts means that you are released from any legal obligation to repay debts and that creditors cannot keep trying to collect. One caveat is that these loans or debts must have been incurred well before filing for bankruptcy, or the creditor may object to their debt being discharged. A court will never look favorably on discharging a host of debts that were recently accrued.

Key Bankruptcy Considerations

Clearly, there are a lot of personal loans that can be included in your chapter 7 bankruptcy filing. But things are different when it comes to filing for chapter 13 bankruptcy. Your debts will often be reorganized, and once you reach the end of the confirmed chapter 13 plan it’s likely that any remaining debt will then be wiped clean. So in one case it’s within months, in the other there is a delay of a few years. 

Another point that may not be first to your mind is that if a cosigner is involved in the debt you’re hoping to discharge, restrictions will vary as to whether creditors can pursue the cosigner for repayment even after your debt is erased. Your trusted bankruptcy attorney can help to iron out those details with you.

Personal Loans and Debts You Cannot Discharge in an Ohio Bankruptcy

Regardless of which type of bankruptcy filing is best for your situation, there are some personal loans and debts that simply cannot be discharged. And even if you would prefer to keep them and pay over time in a chapter 13 plan, the amount owed may be more than is feasible to repay in a set time frame. These sorts of personal debts might include loans for:

• Vacation or second homes
• Second car or truck
• Recreational vehicles
• Boats
• Collectibles or valuable items

Besides these obviously extraneous debts, there are other types of loans or debts that bankruptcy does not erase:

• Alimony
• Child support
• Certain unpaid taxes
• Debts resulting from willful and malicious acts
• Personal injury judgments resulting from driving under the influence
• Homeowners association dues

There are also a host of circumstances that may cause the court to decide against discharging debts. These might be that a debtor disobeys court orders, refuses counseling, did not keep adequate records, could not explain the loss of assets, or at worst was fraudulent, lied, or committed a crime. 

Secured Debt and Bankruptcy in Ohio

Another factor to keep in mind is that while unsecured debt is more readily discharged, even if secured debt is erased, any existing lien on the property is not. This means that the creditor could end up recovering the property even if you’re free of the debt. For example, if you were to file for chapter 7 bankruptcy in hopes of clearing your home mortgage, even if the court okays it, the lien remains on the home. Once the automatic stay lifts and if the mortgage remains unpaid, the lender can then exercise their rights and foreclose.

Student Loans and Bankruptcy in Ohio

In general, student loans are not discharged in an Ohio bankruptcy filing. It’s not impossible, but it is exceedingly rare and requires absolute proof that repayment puts an undue hardship on the debtor, preventing them from maintaining a minimum standard of living. If you owe student loans and were hoping to have them discharged, you’d also need to prove that your finances won’t soon be changing. That makes sense, because recently graduated individuals may be on the hunt for a job and could land a position that would enable repayment. On top of this, you’d need to show that you’ve tried your best to keep up-to-date with the bills. 

Rely on Your Ohio Bankruptcy Lawyers

When life takes you down a path from which bankruptcy seems the only logical exit, you’ll want sound advice from reliable advisors to help you along. This will undoubtedly be a stressful time, but know that you aren’t alone. Working with an experienced Akron bankruptcy attorney will ensure the best possible outcome.

If you need help to decide whether chapter 7 or chapter 13 bankruptcy is best for your situation, reach out to the experts at Hausen Law, LLC and our Northeast Ohio Bankruptcy Attorneys will be happy to weigh in. Give us a call at our office or complete an online contact form to schedule a free consultation. We proudly serve the Akron, Canton, Wooster, and Dover/New Philadelphia communities and are here to help our neighbors.