Can personal loans be included in bankruptcy

Can personal loans be included in bankruptcy

If you are struggling with debt and considering filing for bankruptcy, you may be wondering if your personal loans can be included in the process. Personal loans are a common form of debt, and many people rely on them to cover unexpected expenses or consolidate other debts. However, if you are unable to keep up with your payments, bankruptcy may be an option to help you get back on track. In this article, we will explore whether or not personal loans can be included in bankruptcy and what options you have for managing your debt.

Understanding Bankruptcy

Before we dive into the specifics of personal loans and bankruptcy, it’s important to have a basic understanding of what bankruptcy is and how it works. Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure their debts. It is typically used as a last resort for those who are unable to pay their debts and need a fresh start.

There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, also known as liquidation bankruptcy, most of your assets are sold to pay off your debts. Most of your debts are discharged in exchange, which means you are no longer required by law to make payments on them. In Chapter 13 bankruptcy, also known as reorganization bankruptcy, you create a repayment plan to pay off your debts over a period of three to five years. At the end of the repayment period, any remaining eligible debts are discharged.

Can Personal Loans Be Included in Bankruptcy?

The short answer is yes, personal loans can be included in bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy allow for the discharge of personal loans. However, there are some factors to consider before deciding to include your personal loans in bankruptcy.

Secured vs. Unsecured Personal Loans

First, it’s important to understand the difference between secured and unsecured personal loans. A secured loan is backed by collateral, such as a car or house, which the lender can repossess if you default on the loan. An unsecured loan, on the other hand, is not backed by collateral.

In bankruptcy, secured loans are treated differently than unsecured loans. If you have a secured personal loan, the lender may be able to repossess the collateral if you include the loan in bankruptcy. This means that you may lose your car or house if you are unable to continue making payments.

Dischargeability of Personal Loans

Not all debts are dischargeable in bankruptcy. Some debts, such as student loans and taxes, are generally not eligible for discharge. However, personal loans are typically dischargeable in both Chapter 7 and Chapter 13 bankruptcy.

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There are some exceptions, however. If the lender can prove that you obtained the loan through fraud or misrepresentation, the debt may not be dischargeable. Additionally, if you incurred the debt within 90 days of filing for bankruptcy, it may be considered a preferential transfer and not eligible for discharge.

Reaffirming Personal Loans

In some cases, you may be able to keep your personal loans out of bankruptcy by reaffirming the debt. Reaffirming a debt means that you agree to continue making payments on the loan, even after filing for bankruptcy. This is typically done for secured loans, as the lender may repossess the collateral if the debt is not reaffirmed.

Reaffirming a personal loan can be risky, as it means you will still be responsible for the debt even after bankruptcy. However, it may be a good option if you want to keep the collateral, such as a car or house, and can afford to continue making payments.

Alternatives to Including Personal Loans in Bankruptcy

While bankruptcy can be a helpful tool for managing debt, it is not the only option. Before deciding to include your personal loans in bankruptcy, it’s important to explore other alternatives that may better suit your situation.

Debt Consolidation

Debt consolidation involves taking out a new loan to pay off multiple debts, including personal loans. This can help simplify your debt by combining multiple payments into one, potentially with a lower interest rate. However, debt consolidation may not be an option for those with poor credit or a high debt-to-income ratio.

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Debt Settlement

Debt settlement involves negotiating with your creditors to settle your debts for less than the full amount owed. This can be a good option for those with a large amount of debt, but it can also have a negative impact on your credit score.

Credit Counseling

Credit counseling involves working with a certified credit counselor to create a budget and develop a plan for managing your debt. They may also be able to negotiate with your creditors on your behalf to lower interest rates or create a repayment plan.


In summary, personal loans can be included in bankruptcy, but it’s important to consider all of your options before making a decision. Bankruptcy can provide a fresh start for those struggling with debt, but it can also have long-term consequences on your credit score. Before filing for bankruptcy, it’s important to consult with a bankruptcy attorney and explore other alternatives that may better suit your situation.

If you are considering bankruptcy, it’s important to act quickly. The longer you wait, the more difficult it may be to manage your debt. Consider reaching out to a loan solutions company for guidance and support in finding the best solution for your financial situation. With the right help and resources, you can take control of your debt and achieve financial stability.

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