A loan default occurs when an individual fails to keep up with financial obligation as per the debt / loan contract and fails to make a payment on a scheduled date in some way or the other. In the United States, if you fail to pay on time, you are delinquent and if you continue to be delinquent, you are technically in default, thus making your entire loan balance due immediately. And once you default, you are in trouble as it would affect your credit report, additional collection charges and penalties would be added. The government may even withhold your federal and state tax refunds and even part of your wages to collect the due amount from you. Many of us are not aware how it could affect our credit report or bankruptcy filing. This article answers some of the questions asked on loan default and its laws associated with bankruptcy.
Would filing bankruptcy under chapter 13 help someone whose title loan is in default?
If the court approves the bankruptcy, the creditor of the title loan would have to abide the individual’s (the person in default) repayment plant and would not be able to repossess. Filing bankruptcy under chapter 13 helps an individual to restructure his / her payment plan over a period of 3 to 5 years. Can an individual default on a loan without filing bankruptcy?
The individual would have to stop paying the loan for a period of 60 to 90 days before he / she can modify the loan. However, if the lender does not accept the loan default, the individual may have to file for bankruptcy. Can an individual file for bankruptcy if his / her SBA loan is in default?
Yes, an individual can file for bankruptcy if his / her Small Business Loan (SBA) loan is in default as these SBA loans are dischargeable in bankruptcy. The individual’s liability on the loan may be discharged if he / she files for bankruptcy and it gets approved by the court. Will an individual, who is a co-signee on an auto loan along with his son be held responsible if his son defaults on it?
Yes, the creditors may come after the individual and sue him if his son defaults on the loan. However, if the individual files for bankruptcy and includes the auto loan in the bankruptcy petition, the loan would be discharged. Thus the creditor will not be able to collect the due amount from him and his son alone would be responsible for it. Will an individual’s personal credit be affected if his / her LLC business loan is in default?
In most cases, an individual’s personal credit may not get affected if a business loan is in default. Because, an LLC business and its associated loans are completely different entities and do not get reflected in an individual’s personal credit report. However, if an individual is a personal guarantor of the loan for the LLC business entity, then he / she could be held responsible for the default and it would impact the personal credit report. In such a case, the company’s default loan may appear in the personal credit report of the individual if the creditor gets a default judgment. A person should have a clear idea about issues pertaining to loan default so that he / she could plan the repayment of the loan in a better way which would not affect his / her personal credit report. When in doubt, one should always ask a bankruptcy lawyer to be on safe side while dealing with such issues.
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