Can Parent Plus Loans Be Discharged In Bankruptcy
Parent PLUS Loans can be discharged in bankruptcy like other types of federal and private student loans. But you first have to file a lawsuit in your bankruptcy case called an adversary proceeding. In the adversary complaint, you’ll have to show the bankruptcy judge that repaying the loans would cause an undue hardship to you and your dependents. Proving undue hardship is challenging.
Most bankruptcy courts look at your proof using the Brunner Test, which reviews three criteria:
You can read more about the student loan bankruptcy process here.
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Reaffirmation Provides Certainty Against Repossession
If you don’t sign a reaffirmation agreement, the lender can repossess your car after your case closes and the automatic stay lifts. Some car lenders are known to repossess the car immediately, even if you are current on payments. Other policies differ, but in all cases, you should expect a repossession if you miss a payment. Reaffirming your car loan will provide certainty against the lender repossessing your car as long as you keep current with your payments.
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Discharging Sba Loans In Bankruptcy
SBA loans CAN be discharged in bankruptcy. However, if you were to default on the loan and do nothing, the lender can take legal steps to recover the money you owe. More than likely, the lender can garnish your wages, sue you, and place a lien on your property.
If youre in a panic right now because you cant keep up with your payments, you may be able to eliminate the debt by filing bankruptcy. Unlike certain types of student loans, SBA loans can be discharged through bankruptcy but theres a catch. If you used something, such as your home as collateral to get the SBA loan, the bankruptcy cannot eliminate the lenders security interest in your home, or whatever collateral you used to secure it.
While the lender cant sue you to pay back the debt, its still entitled to the collateral that you used to secure the loan. Meaning, it can take back the property through repossession or foreclosure. So, if you include the SBA loan in a bankruptcy, the lender is legally entitled to enforce a lien against your property to recover some of its losses.
Do Bankruptcies Affect Second Mortgages
Second mortgages and home equity lines of credit are also impacted by bankruptcies. If you have a second mortgage or HELOC, youre not responsible for it under a Chapter 7 bankruptcy, but youre required to keep paying on it if you want to keep the house without a problem.
Things become a little more complex with a Chapter 13 bankruptcy. If you can prove that your existing equity isnt enough to cover what you owe on a second mortgage or HELOC, you can present that evidence in bankruptcy court. If a judge agrees, the junior lien taken out after your first mortgage may be stripped off.
One thing to note is that a lender may fight this, so to give yourself the best chance of success, you may want to have an appraisal done before you file for bankruptcy.
If I File Bankruptcy What Happens To My Car In Texas
The main point to understand is that a vehicle loan, unlike credit card loans and most personal loans, is something called a secured debt. This means the vehicle itself backs or secures the value of the loan, by serving as collateral for the loan. If the borrower is unable to make payments on the car loan, the lender traditionally has the right to repossess the vehicle.
Enter bankruptcy, a unique federally-created protection for many kinds of personal property in the State of Texas, which stays or places on hold most types of collection activities and lawsuits, including vehicle repossession. While bankruptcy is ongoing, a vehicle repossession generally cannot take place without the permission of the judge overseeing the case.
In Texas, there are several options for filing bankruptcy and keeping your car, motorcycle, SUV, or other personal vehicle. If you take no actions on your vehicle loan when you file for Chapter 7 or Chapter 13 bankruptcy, you may be relieved of your obligation to repay your car loan afterward, and your car also will most likely not be repossessed.
You may also redeem or reaffirm your car loan, potentially better options for rebuilding your credit and recovering from bankruptcy, both of which we discuss below.
The Difference Between Chapter 7 And Chapter 13 Bankruptcy
When you file for Chapter 7 bankruptcy, you allow all of your debt to be eliminated or discharged. This type of bankruptcy allows for a liquidation of assets with all of the proceeds distributed to your creditors. Chapter 13, however, reorganizes your debt into a convenient repayment system that can last from three to five years. With Chapter 7, you will be required to complete a Means Test to review your income and all of your assets. Once you pass the test, a meeting is set up with your creditors.
Car title lenders will often want you to receive a discharge once the meeting with your creditors has taken place before they will consider providing you with a loan. If the meeting has yet to be completed, you may not be eligible for a title loan at the time.
If you file for Chapter 13 bankruptcy, you will need to get permission from your trustee before you are able to apply for a loan with a car title lender. Your personal Chapter 13 plan is designed to help you get out of debt based on the current amount owed. So before you can incur another debt, your trustee will need to be informed. They may need to cap the interest rate or set a particular limit on the amount that you are able to borrow.
Keeping The Car Outside Of Bankruptcy
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act eliminated drive through car loan agreements for bankruptcies. Before the act, consumers and car lenders could continue with whatever agreement they wanted, ignoring the bankruptcy. While drive-throughs are now against bankruptcy rules, it still happens and courts rarely enforce it. When no intention to reaffirm, redeem or surrender the car is filed by the deadline, a car loan is dropped from the bankruptcy. In many cases, the car owner and lender continue to do business and always, and courts rarely enforce it. Of course, this only works for the car owner if theyre making payments on time.
Since this option is counter to bankruptcy law, its not necessarily something youd want to pursue, and it provides a lot less protection than going with one of the routes allowed by law.
How Do I Get Rid Of These Loans In Bankruptcy
Title loans are secured debt. Therefore, we are assuming your lender has attached their name to your title. This means that you have to pay for the loan to keep your vehicle in chapter 7 bankruptcy. In chapter 7, you may want to look at reaffirming the loan, which keeps the loan on your credit report and allows you direct communication with your lender. In chapter 13, we can lower the interest rate and spread the loan out to three to five years to pay it back in your chapter 13 plan, which substantially lowers your payment and the total amount you have to pay back.
Registration loans usually are not secured to the vehicle, so they are simply discharged or forgiven in bankruptcy. The key is to make sure before filing bankruptcy that the lender has not secured the loan to the title. Some of these loan companies will call your loan a Registration loan but its really a Title loan. Make sure you know the difference and which type of loan is yours.
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What About Chapter 13 What Happens With My Existing Mortgage
With a chapter 13 bankruptcy, borrowers will not lose their property. You will include details on how you plan on paying your mortgage in your repayment plan. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.
It was designed to temporarily halt foreclosure and stop repossession of homes regardless of the stage of the foreclosure proceedings. For homeowners with too much equity to qualify for a homestead exemption in their jurisdiction, this is an advantage of a Chapter 13 filing.
There are a couple of important caveats here: First, you have to stay current on any mortgage payments that are due after the filing. If youre behind on your payments, missed payments can be included in your reorganization plan, but you have to make sure all these debts are paid back by the end of your plan timeline.
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Debt Relief Alternatives To Bankruptcy
Bankruptcy has serious consequences. A Chapter 7 bankruptcy will remain on your for 10 years, and a Chapter 13 will remain for seven years. That can make it more expensive or even impossible to borrow money in the future, such as for a mortgage or car loan, or to obtain a credit card. It can also affect your insurance rates.
So itâs worth exploring other types of debt relief before filing for bankruptcy. Debt relief typically involves negotiating with your creditors to make your debts more manageable, such as reducing the interest rates, canceling some portion of the debt, or giving you longer to repay. Debt relief often works to the creditorâs advantage, too, as they are likely to get more money out of the arrangement than if you were to declare bankruptcy.
You can negotiate on your own or hire a reputable debt relief company to help you. As with , there are scam artists who pose as debt relief experts, so be sure to check out any company that youâre considering. Investopedia publishes a regularly updated list of the best debt relief companies.
How To Get A Loan After Bankruptcy
Filing for bankruptcy can be devastating to your financial future, especially if you need to take out a loan. While it will provide you with a fresh start, you will be limited on the things that you can do as far as your finances are concerned. If you have recently decided that filing for Chapter 7 bankruptcy is your only way out of debt but now require a short-term loan to help you get back on your feet, you may want to consider getting a car title loan.
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Title Loans And Chapter 7 Bankruptcy
Chapter 7 bankruptcy often provides maximum debt relief since it discharges unsecured debts, such as credit card bills and medical bills. You can discharge tens of thousands of debt that way and never have to worry about paying it.
However, you most likely will not be able to discharge a title loan in a Chapter 7 bankruptcy. Title loans are usually considered secured loans since you are pledging the value of your car against the loan. That gives title loan lenders the right to repossess your vehicle if you default on the loan. The lender can then sell your vehicle at an auction in an attempt to raise as much as you owe.
That doesnt mean that filing for Chapter 7 bankruptcy wont help you. If you have a lot of other unsecured debts, you can have those discharged in a Chapter 7 bankruptcy, which would free up a lot of money to pay back your title loan and keep your car out of repossession. It is important that you talk through the options with an experienced bankruptcy attorney so you can get the maximum benefit from filing bankruptcy.
When Type Of Debt Matters In A Bankruptcy
The type of debt you have matters in any bankruptcy. However, it more directly factors in with a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, any property you own that does not meet an exemption under Ohio or Kentucky law is sold. This is called liquidation.
The proceeds are used to pay off debt, in a certain order. Any debts remaining are discharged unless there is a legal reason to keep them from being discharged. A discharge means the debt is erased. It is off the books and creditors are legally prohibited from pursuing collection.
Because of this order, the type of debt is important. Priority debts, like taxes owed, cannot be discharged and are paid first. Secured debts, where there is collateral, are second. Unsecured debts, like most medical debt, are last, and are usually discharged entirely.
In a Chapter 13 bankruptcy, the type of debt matters, but not as prominently. A Chapter 13 is called a reorganization. You submit a plan that the court must approve, under which you pay your creditors back as much as you can over three to five years. Your creditors must make at least as much as they would under any other type of bankruptcy, including Chapter 7.
Your bankruptcy lawyer will review all the debt you owe and advise you as to what kind of filing will be best for you.
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Learn How To Get A Loan After Bankruptcy
Getting a loan after bankruptcy can be very difficult, especially if you are dealing with a bank or other major financial institution. If you are in the middle of your bankruptcy filing and need some extra cash for an unexpected emergency, there may be ways to get access to small loans that will help you out until you are able to get back on your feet.
Pay Off A Title Loan In Bankruptcy
A Title Loan is touted as a short term but high interest rate loan meant to bridge the gap between paychecks similar to a payday loan. The difference between the two is a title loan is secured against your vehicles, so if you get behind on payments they can repossess your vehicle. Just like payday loans the sole purpose of a Title Loan is to trap you in a vicious cycle of debt.
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How Do Student Loans Discharge In Bankruptcy
What can you file bankruptcy on when it comes to student loans? Well, discharging student loans in bankruptcy is not impossible, but its rare.
Under current law, youll need to pass the Brunner test by showing that your student debt makes it impossible to maintain a minimum standard of living, and that your finances arent going to change soon. You also have to show youve made a good faith effort to keep up with your student loan bills.
In fact, consumer protection attorney Don Petersen said, Some debts are dischargeable in Chapter 7 as well as Chapter 13, but only if the debtor files an adversary proceeding, which is a sort of lawsuit within a lawsuit, challenging whether a certain liability can be discharged.
In many student loan cases, switching to an income-driven repayment plan or applying for deferment or forbearance is a better option. Filing for bankruptcy can be a long and expensive process with no guarantee of success. Plus, it damages your credit for years.
Can You File Bankruptcy On Personal Loans
While you can typically file bankruptcy on personal loans, theres a key difference to be aware of if you have an unsecured personal loan with a cosigner.
Under Chapter 13 bankruptcy, creditors usually cant call your cosigner during your bankruptcy period. Under Chapter 7, creditors can continue to contact your cosigner for payment.
In other words, your cosigner has greater protections under Chapter 13 bankruptcy than under Chapter 7.
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Does Bankruptcy Discharge Mortgage Debt
The answer to this question really depends heavily on the type of bankruptcy being filed. Well go over the scenarios for Chapters 7 and 13 bankruptcies because these are the most common, but if you have any questions, please consult your bankruptcy attorney.
We referred to Chapter 7 above as the wipeout bankruptcy because youre relieved of your responsibility for the debt. However, if you want to keep your home and car, youll need to keep your mortgage and car loans. If you dont stay current on your payments, your mortgage lender can foreclose, and the car can be repossessed.
Chapter 13 bankruptcies are about reorganization, so you can use this type of bankruptcy to pay back debts according to the timeline in your plan while staying current on any mortgage payments after the bankruptcy is filed. Unlike Chapter 7, under Chapter 13 bankruptcy, youre still responsible for the debt.