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Personal loans in Bankruptcy

Do you have to disclose personal loans when you file bankruptcy?

When you file a bankruptcy petition, you have an obligation to disclose all of your debts. This includes credit card debts, mortgages, car loans, tax debts, any overdue child support or alimony, overdrawn bank accounts, foreclosure and short sale deficiencies, lease deficiencies, and any other debt you have at the time of the filing - including personal loans. So yes, if you borrowed any money from parents, friends, or any other person, it has to be disclosed.

The disclosure is necessary for two reasons. First, the court wants to have a complete picture of your financial situation. Second, it protects you from possible claims from your personal creditors in the future. Even if today you have a wonderful relationship with the friend or girlfriend who lent you money, things change and relationships evolve, and at some point in the future this person may decide to press you to pay back, possibly by suing you. If this person was not disclosed in the petition, he or she can legitimately claim that the debt was not discharged through bankruptcy. This happens more than you would like to believe.

Just because someone is listed in your bankruptcy petition, does not mean that that person's credit rating is somehow affected, or that the person has an obligation to take any role in your case or attend any court meetings or hearings.

It also does not necessarily mean that this person will never have this debt repaid. If you are filing a Chapter 13 case and paying a certain amount back to unsecured creditors, your personal loans will also get partially repaid through this plan - provided that the personal creditor files a claim with the court. The claim form is very simple and straightforward.

As to the rest of the debt or if you are  filing Chapter 7, you may still repay this at some point in the future after the bankruptcy case is done. You will have no legal obligation to do so, but you may if you are willing and able.

With regard to personal loans, do not repay any such loans while the case is still active, and do not repay any such loans shortly before the bankruptcy petition is filed unless you also pay back comparable amounts of all other unsecured debts, such as credit cards. The court wants all creditors who are similarly situated to be treated the same. Showing a "preference" to your friends or relatives is one of the worst things you can do in bankruptcy, and likely will result in a higher plan payment if you are in a Chapter 13, and possibly attempt by the bankruptcy trustee to recover money from your friends or relatives if you are in a Chapter 7.

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