Could bankruptcy still be filed if the debt is with a private lender?

UPDATED: Jan 22, 2012

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Could bankruptcy still be filed if the debt is with a private lender?

My parent got a high interest loan and put up the family property as collateral for said loan. Now after the divorce, it’s gone unpaid. I’m wondering what my options are.

Asked on January 22, 2012 under Bankruptcy Law, Oregon


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Bankruptcy may be filed for almost any debt, including debts owed to private lenders--while there are a few debts which, under law, cannot be discharged by bankruptcy, those do not seem to apply here. The debts which cannot be discharged are ones such as tax debts; child support and alimony; federal guaranteed or provided student loans; or from court judgments from lawsuits over injuries or damage caused while DUI.

However, while bankruptcy can be filed over a debt owed to a private lender, it may not help your situation as much as you'd hope: bankruptcy does  not end or eliminate a security interest in property. Therefore, if the debt is not paid, the lender may still foreclose on the family property. What the bankruptcy will do is temporarily stop foreclosure actions--which can give you more time to work through the situation--and will prevent the lender suing you for repayment--but  the lender will still ultimately be able to take any property which was collateral for a loan.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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