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

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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

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 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.


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