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Should a Personal Loan Owed to a Family Member or Friend Be Included When Filing Bankruptcy?

Posted By Allmand Law Firm, PLLC || 24-Apr-2013

Personal Loans Eligible to Be Discharged in Bankruptcy

One of the most important elements debtors should review when considering bankruptcy is how personal debt is handled by the court. When you file, you are required to list outstanding debt including loans owed to friends or family. Depending on the chapter you file they are handled differently. For the most part, these types of personal loans may be eligible for discharge or inclusion of a repayment plan schedule.

Family Loans and Bankruptcy

Personal loans owed to family or friends are handled in the same fashion as other loans that are commonly included in a filing. When you are considering bankruptcy you should avoid making payments on such loans. Meaning, if you decide to pay your family member or friend what was owed before filing, this action could affect the outcome of your case. The court may view such action as showing favoritism to certain creditors, when the court treats all debts equally and fairly. Plus, doing this may be considered a form of bankruptcy fraud you would want to avoid.

Establish a Reaffirmation Agreement

Sometimes owing money to someone you know such as family or friends can cause conflict. You may want to try and establish a reaffirmation agreement that includes talking to them about a payment arrangement. On the other hand, bankruptcy offers additional options. Chapter 7 bankruptcy may discharge or wipe out the debt (if unsecured), if a sale of property or personal asset doesn't offer full or partial payment. Chapter 13 bankruptcy may include the debt in the repayment plan, with part, if not all of the debt being repaid based on disposable income and secured debt obligations.

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