Bankruptcy and Personal Loans

[Mar 10, 2009.]

 

There were about 1.1 million consumer bankruptcy filings in the U.S. during 2008, a 31% increase over 2007, according to the American Bankruptcy Institute. For many of those people, filing bankruptcy was seen as the last resort to getting out from under the crushing debt of personal loans, mortgages, credit cards, etc.

So what happens to personal loans and other debs that are owed when a person files bankruptcy? That depends upon the type of bankruptcy filed.

Chapter 7 Bankruptcy

This type of bankruptcy is basically a liquidation of assets. The trustee can sell off some of a person’s assets to help pay debts. After a 90 day period, most of a person’s debts will be discharged, such as unsecured personal loans and credit cards. However, debts that are secured will have to be repaid. Those debts may include auto loans and mortgages. The person filing for bankruptcy will also have to continue making child support, tax, and student loan payments. Any debts that are incurred after a bankruptcy filing will not be discharged.

Chapter 13 Bankruptcy

When filing for Chapter 13 people can usually keep their property. The bankruptcy court will set up a plan for creditors to be paid based upon the filer’s income and circumstances. Payments will continue to be made under the plan until they are paid off or until the end of a period of three to five years. The filer will receive a discharge for their debts at the end of the repayment period. To be approved for Chapter 13, the filer must:

—Have enough income to make payments

—Not have secured debts that total more than $1,010,650

—Not have unsecured debts that total more than $336,900.

Anyone who is considering filing for bankruptcy should examine their situation carefully to determine if it is the right move. Among the things they should consider are:

—Whether their wages have been garnished

—How much of their debt is unsecured, such as personal loans or medical bills

—Whether the total amount of their debt is more than they could make payments on

—Do they have lawsuits against them

—If they owe more taxes than they can afford to pay

—If they are being hounded by collection agencies.

A knowledgeable attorney can help sort out whether or not it makes sense to go ahead with a bankruptcy filing. The American Board of Certification has a list of attorneys who can help.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.