Submitted by Rachel R on Wed, 04/25/2018 - 10:35am
How are personal loans treated in Wilmington bankruptcy?
Image by Burst via Pexels
Bankruptcy can be the perfect way to climb out of unmanageable debt. A discharge in Chapter 7 means ditching unsecured debt while Chapter 13 leaves you paying pennies on the dollar on unsecured debt in many instances. However, if you have personal loans owed to friends and family when you go into Wilmington bankruptcy, you may be torn about how to proceed.
Secured debt is attached to an asset such as a home with a mortgage or vehicle with an auto loan. In Chapter 7, if you’re current on secured debt, you can shed unsecured debt and usually maintain a secured asset loan so long as you're not behind on payments and the equity in the item doesn’t exceed North Carolina bankruptcy exemptions.
In Chapter 13, with secured debt, there’s less concern with equity. If you’re delinquent on secured debt, you can include the past-due in your repayment plan, protect the asset from foreclosure or repossession, and be current on that debt by the end of your bankruptcy.
Unsecured debt is that which has no asset supporting it. Credit card debt, medical bills, and personal loans are all unsecured. Personal loans can be from friends, family, employers, private lenders, or your bank. This debt can be 100% discharged in Chapter 7 or partially/fully discharged in Chapter 13.
Although you are clearly more attached to your family and friends than you are to your credit card issuer, the bankruptcy court sees them as equals and lumps them into the same class of debt. Personal loans are just as dischargeable as credit card debt.
When a friend or loved one lets you borrow money, they may expect repayment. If they don’t, it may be more properly classified as a gift. This is something to discuss with your Wilmington bankruptcy attorney. However, if it is a loan, you can’t try and keep it out of the bankruptcy case.
In bankruptcy, all your creditors must be treated equally. You can’t pick and choose between them. That means if you know you’re filing bankruptcy soon and want to pay back a loan from your Aunt Jessica, you should not. The court may latch onto this and make trouble.
The bankruptcy trustee assigned to your case has the power to “look back” at your finances in the months or years before the date you filed. If they see payments to unsecured creditors before bankruptcy that raise a red flag, the trustee may demand return of the money.
If the trustee in your Wilmington bankruptcy case decides it was a preferential payment, they can make the payee give it back, and the trustee can pay other creditors with it. That could be very embarrassing, particularly if handing over the money to the trustee causes them financial hardship.
Those planning to file bankruptcy shouldn’t try and sneak in a preferential payment. You can’t pick and choose between creditors.
Once you decide to file bankruptcy, you must come to grips with the fact that any personal loans must be part of your Wilmington bankruptcy. Once you’ve completed your Wilmington bankruptcy, later down the road, you can always decide to make good on the funds given you from friends and family, but you can’t accommodate it in a Chapter 7 bankruptcy.
Always remember to be 100% honest and transparent with your North Carolina bankruptcy lawyer. Tell them about all your debt, income, and assets. Don’t try and hide anything or your case could be kicked from the court and your shot at debt relief squandered. Bankruptcy is an excellent opportunity for meaningful debt relief, but only if you play by the rules.
To explore the life-changing benefits of bankruptcy, read reviews from our satisfied clients, then contact the Law Offices of John T. Orcutt. Call +1-833-627-0115 to schedule a free Wilmington bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.
Debts Hurt! Got debt? Need help? Get started below!
Serving All of North Carolina
Bankruptcy Attorneys Raleigh NC (North)
6616 Six Forks Rd #203 Raleigh, NC 27615 North Carolina
Tel: (919) 847-9750
Bankruptcy Attorney Fayetteville NC
2711 Breezewood Ave Fayetteville, NC 28303 North Carolina
Tel: (910) 323-2972
Bankruptcy Attorney Durham NC
1738 Hillandale Rd Suite D Durham, NC 27705 North Carolina
Tel: (919) 286-1695
Bankruptcy Attorneys Wilson NC
2215 Nash St N Wilson, NC 27896 North Carolina
Tel: (252) 234-9194
Bankruptcy Attorneys Greensboro NC
2100 W Cornwallis Dr. STE O Greensboro, NC 27408 North Carolina
Tel: (336) 542-5993
Bankruptcy Attorneys Southport NC
116 N Howe St. Suite A, Southport, NC 28461 North Carolina
Tel: (910) 218-8682
Bankruptcy Attorneys Wilmington NC
116 N. Howe Street, Suite A Southport, NC 28461 North Carolina
Tel: (910) 447-2987