Is It Dischargeable Through Bankruptcy
It’s a popular misconception that an SBA loan is not dischargeable due to it being a loan from a federal agency. However, as we’ve explained above, the SBA is not the one giving out the loan, it’s only a partial guarantor. Moreover, many other government loans are still dischargeable through bankruptcy.
With that said, an SBA loan is dischargeable through bankruptcy. Still, do note that there are still some things that you’ll be liable for.
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.
What Happens To The Personally Guaranteed Business Loans
Personally guaranteed business loans can also be discharged in bankruptcy. However, they are handled a bit differently and also may complicate the process. The reason is that a personally guaranteed business loan is secured against ones personal credit history, which means that defaulting on the business loan leads to damage of the persons personal credit standing. This also means that if the bankruptcy court orders asset liquidation for purposes of satisfying the debt repayments, some of the business owners personal property may be at risk.
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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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An Important Note Regarding Representation
While the attorneys at Leiden & Leiden, P.C. are admitted to practice in the states of Ohio, South Carolina, and Georgia, representation at this time is limited to residents of the state of Georgia. Information on this website is based upon the law of the State of Georgia, and applicable laws of the United States of America.
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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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How Can I Improve My Chances Of Approval
You can increase your chances of get approved by taking the time to improve your credit and focusing on the six factors below.
1. Look for secured loans
Secured loans rely less on your credit history and more on the value of your collateral. Because youre providing security and lowering the lenders risk, you may increase your chances of approval if youve previously face bankruptcy. There are multiple types of secured business loans your business may be eligible for, including equipment financing or invoice factoring.
2. Have a solid business plan
Before setting foot in a bank or starting an online application, make a strong case for why you need this money. Put together a solid business plan that proves to the lender youre prepared and know exactly how youre going to use and repay your loan. After a bankruptcy, instilling confidence in your lenders is most important.
3. Limit your outstanding debt
Bankruptcy erases many of your previous debts and obligations, giving you time to sort out your finances and repay any debts that couldnt be discharged.
For the first few years after bankruptcy, you may have trouble getting credit lenders may not be confident that you can repay what you borrow. By limiting your outstanding debt, you show lenders that are responsible with money and that any debts you take on are repaid.
4. Explain your previous bankruptcy
5. Take your time
6. Get a cosigner or co-applicant
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What Happens If You Declare A Loan Default
If you’re unable to work a deal with the lender and SBA, you will be more likely to go into a loan default. The lender will acquire your business assets.
If that’s not enough to recover their losses, they’ll go after your personal assets, too. They can do this because you likely signed a personal guarantee.
The only time they’ll go to the SBA to get the guarantee is when your assets are not enough to cover the loan amount. In that case, you won’t have any problems with the lender anymore. Your next problem, however, is going to be the government who will go after you to get back the money it gave to the lender.
Still, the government would rather you pay up than punish you. You’ll be able to work out a repayment plan in most cases. What happens if you declare a bankruptcy, though?
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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Can I Continue To Operate My Business If I File Personal Bankruptcy
In most cases, yes. A personal bankruptcy rarely interferes with business operations. A business is considered an asset, which will be required to be listed in the personal bankruptcy filing. If any assets are liquidated during the personal bankruptcy case, the business may not be 100 percent safe from creditors. However, the bankruptcy court rarely allows for businesses to be liquidated as they recognize this may be the individuals only mechanism for employment and income.
A Skilled Attorney Offering Legal Advice In Eugene Or
The discharge process may never go as smoothly or quickly as debtors might wish. Discharging federal debt through bankruptcy might be difficult for you if you dont understand the intricacies involved in the process.
If a significant portion of your debt consists of government debt, consider seeking the legal advice of an experienced bankruptcy lawyer. Your lawyer will review your situation and offer you options and the likely outcome. Talk to Eugene, OR bankruptcy attorney Tom Butcher by calling .
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Non Dischargeable Debts In Bankruptcy
Even if a debt is non dischargeable at the end of a bankruptcy case, some of the bankruptcy rules still apply.
Collection of non dischargeable debts is still stayed by the automatic stay. The stay remains in place til the debtor is otherwise discharged, or until a bankruptcy judge lifts the stay as to that debt.
The statute of limitations still controls how long a debt is legally enforceable. The running of time on statute of limitation is suspended while the stay is in place, and sometimes for a specified additional period. But just because a debt is not dischargeable in bankruptcy, applicable law may still allow it to die of old age.
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.
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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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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.
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What Happens To The Assets Of The Business
It depends. In a business Chapter 7 case, the assets will be liquidated and profits divided among creditors. In a Chapter 11 case, assets are generally left alone during the debt repayment process. In some Chapter 11 cases, the court may allow for some of the assets to be sold to third parties for purposes of satisfying the debt payments.
Wait A Bankruptcy Doesnt Get The Lien Released
So while a personal guarantee can be discharged, a lien on your personal residence will remain intact if there is equity in your home. This is an important fact to know, as Ive received calls from more than one upset borrower who only learned that the lien stayed in place AFTER they went through the BK.
For many borrowers with equity in their home, but without much else in the way of personal assets, each of these scenarios may result in a similar cost:
If its going to cost the borrower the same, most people would just as soon avoid having a BK on their record.
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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.
Sba Loan After Bankruptcy Discharge How Long
Some lenders will consider a borrower with a personal bankruptcy whether it was a Chapter 7 or Chapter 13 after it has been discharged in as little as 2 or 3 years, some 5 years and some not at all. In fact, it is safe to say that the majority of SBA lenders willnot lend to someone with a bankruptcy. However, there are lenders who are more open minded about such matters and they will give you a shot if you present a good case.
FYI: A Chapter 11 business bankruptcy is harder to overcome, but again, depending on the circumstances and when it happened it is possible to get financing. There are many borrowers whose businesses were decimated during the Recession in 2008 or who had things happen in their personal or business lives that completely derailed their businesses. Some literally had a business washed away in hurricanes or floods and ended up filing a BK.
Many of these business owners have since recovered and have been able to get loans.
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Can I Get Business Loans After Bankruptcy
Can I still qualify for business loans after bankruptcy?
Its a question small business owners and aspiring entrepreneurs who have suffered that fate may ask when looking for financing. If you want a fresh start, a past bankruptcy need not be a life sentence. It is possible to get approved for a business loan after bankruptcy.
Realistically, it will require you to put together a strategy and expend extra effort. And it may take a while and involve a series of baby steps, but in time it is possible to overcome the effects of bankruptcy on your financial prospects.
A bankruptcy will stay on your credit history for 10 years in the case of Chapter 7 and seven years from the filing of Chapter 13. Also, expect your score to plummet 130 to 240 points depending on your credit score, according to a FICO scoring model. Nevertheless, you can take action to improve your chances of getting that business loan or find capital from alternative sources.
Can You Declare Bankruptcy On A Small Business Administration Loan
While the common perception is that you cannot discharge government loans in bankruptcy, in reality, many such loans can be discharged in bankruptcy. The Small Business Administration does not directly make loans rather, it guarantees at least a portion of the loans, which reduces the risk of liability should the loan go into default. Therefore, SBA loans are dischargeable in bankruptcy proceedings.
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