Most New York residents have different types of debt when they file for bankruptcy, which can make the bankruptcy process feel more overwhelming. Especially if you have a personal loan, when you file for bankruptcy in New York, you may not know how this is treated during Chapter 7.
At Grady BK, PLLC, we understand just how overwhelming the bankruptcy process can feel, which is why we are here to help every step of the way. We will work with you one-on-one throughout this process so that you are never navigating it on your own. In this article, we will discuss how bankruptcy treats personal loans in New York and whether or not Chapter 7 discharges loans.
Are Personal Loans Dischargeable in Chapter 7?
If you want to eliminate personal loans through bankruptcy, you need to understand how bankruptcy approaches debt. To put it simply, bankruptcy views debt in two different ways: secured debt and unsecured debt.
Secured debt is backed by collateral, such as a car or house, which the lender can take if the debt isn’t paid back. Whereas unsecured debt is not backed by collateral, so creditors don’t have the legal right to seize any property. And in New York, unsecured debt is usually dischargeable when you file for Chapter 7 bankruptcy.
So, in the majority of bankruptcy cases, unsecured personal loans are discharged through Chapter 7. This means that this debt will be completely discharged during the bankruptcy process and will no longer be your responsibility.
What Happens to Lenders After Filing?
There are many benefits to filing for Chapter 7 bankruptcy that even surpass having personal loans discharged. One of the main benefits is the automatic stay, which is a type of protection that is initiated once you file for bankruptcy. This helps to stop personal loan collection and any other types of collection efforts from lenders.
Once the automatic stay is in place, creditors are prohibited from trying to reach out or collect on any type of debt. They will also lose all collection rights once your personal loans have been discharged.
What If the Loan Is From a Friend or Family Member?
Private loans that you received from a friend or family member can complicate a Chapter 7 bankruptcy case. With these types of loans, you aren’t strictly legally obligated to pay the individual back unless the two of you have come to a more formal payment agreement.
There is also a risk to trying to pay back a friend or family member after filing for bankruptcy, since this can be viewed as preferential treatment for one creditor over another. This violates the bankruptcy laws since it dictates that all creditors must be treated equally.
Despite this, it’s still possible to pay back private loans from friends and family members as long as you use the right strategy. An attorney can help you decide how to go about doing this without violating the terms of your bankruptcy case.
It’s also important to remember that just because your loan is from a friend or family member, it doesn’t mean that you should leave it out when you file for Chapter 7. You are obligated to include all debts, even if they are casual loans that don’t come from an actual creditor.
What If You Had a Co-Signer?
Things can get a bit tricky if someone co-signed on a loan with you if you weren’t able to obtain it on your own. This is a common scenario for those who take out a loan when they are already in debt, as they may not qualify on their own, depending on their credit history.
If the loan is unsecured, it is very likely that Chapter 7 will discharge this so that it is no longer your responsibility. However, this does not extend to co-signers, as they will usually maintain responsibility for the loan. Because of this, lenders can take collection actions against the co-signer as a way of obtaining the complete remaining balance for the loan.
So, if you have a loan with a co-signer, it’s important that you discuss your options with a bankruptcy lawyer in Watertown, NY. An attorney can evaluate the situation to determine the best course of action that protects both you and your co-signer.
What If the Loan Is Secured?
In the majority of cases, New York residents won’t have secured personal loans, as these are more commonly unsecured. However, if you do have a secured loan, there is still a chance that Chapter 7 bankruptcy can discharge it. Whether or not this is a possibility depends on the situation and the debt.
Even if your secured loan is discharged through Chapter 7, there could be collateral implications. For example, the lender may be able to take the property serving as collateral as payment, even if your personal responsibility has been discharged.
FAQ:
Can I get rid of personal loan debt in Chapter 7?
Yes, in the vast majority of cases, unsecured personal loans are dischargeable in Chapter 7 bankruptcy.
Will the lender still contact me after filing?
Once you file for bankruptcy, an automatic stay takes affect, protecting you from any collection efforts from lenders. But keep in mind that this protection doesn’t extend to co-signers.
New York’s Top Compassionate Bankruptcy Attorney
If you had to take out a personal loan to get by, you may worry about how this will impact your Chapter 7 bankruptcy case. At Grady BK, PLLC, our Watertown bankruptcy lawyers are here to help you better understand what your options are when filing for bankruptcy. We provide a personalized approach that is catered to your specific financial circumstances and goals.
At Grady BK, PLLC, we can help whether you have already started the bankruptcy process or are still considering your options. We are also here to address any questions or concerns you may have.
Contact us today at 315-299-9005 to discuss your situation with a bankruptcy lawyer in Watertown, NY. Our team at Grady BK, PLLC, is here to assist you with your bankruptcy case when you are ready to get started.
