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Loan Default Questions

What is a loan default? When an individual fails to keep up with his/her financial obligations towards a debt contract and fails to make a debt payment on a scheduled date; it may be called a loan default. When an individual has a default on a loan, he/she may not be aware of how it could affect his/her credit report or how a loan default would affect a bankruptcy filing. There could be many questions about a loan default that individuals may have. Not finding answers to these questions can be irritating and frustrating. Given below are popular questions about loan default that are commonly asked by individuals that have been answered by Experts.

Will an Individual’s Personal Credit be Affected if his/her LLC Business Defaults a Loan?

In most situations, an individual’s personal credit may not get affected if there is a loan default on his/her LLC business. This is because an LLC business would be a completely different entity from the individual and anything that affects the business’s credit may not appear on the individual’s credit report. However, if the individual is a personal guarantor of the loan, then he/she would be considered responsible for the loan. In such a situation, the company’s defaulted loan may appear on the individual’s personal credit report if the creditor gets a judgment for the default.

Would a Chapter 13 Bankruptcy help an Individual whose Title Loan is in Default?

In most situations, a Chapter 13 Bankruptcy would give an individual time to come up with a payment plan to repay any secured loan arrearages over a period of 3 to 5 years. Hence, if the individual files for a Chapter 13 Bankruptcy and if his/her title loan is in default, the bankruptcy may give the individual time to reorganize his/her debt. If the court approves the bankruptcy, the creditor of the title loan may have to abide by the individual’s repayment plan and may not be able to repossess.

Can an Individual Default on a Loan without Filing for Bankruptcy?

An individual may not have to file for bankruptcy if he/she wants a default on a loan. In most situations, the lender may not allow the individual to default a fully performing loan. The individual may 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 he/she has a Default on an SBA Loan?

An individual may be able to file for bankruptcy if he/she has a default on an SBA (Small Business Loan) loan. SBA loans are dischargeable in a bankruptcy. The individual’s liability on the loan may be discharged if he/she files for bankruptcy and it gets approved by the bankruptcy court.

Would an Individual, who is a Co-signee on an Auto Loan along with his/her son, be Responsible for the Loan if his/her son Defaults on it?

If an individual is a co-signee on an auto loan with his/her son, then the creditors may come after the individual and his/her son if the son defaults on the loan. However, if the individual files for bankruptcy and includes the auto loan in the bankruptcy petition, then the loan would be discharged for him/her. This would mean that the creditors would not be able to collect the loan from him/her and that the individual’s son alone would be responsible for it.

Understanding what happens when an individual defaults a loan will help him/her plan his//her repayment of the loan in a better way. Knowing how filing for bankruptcy can affect an individual if he/she has a default on a loan will also help an individual decide if he/she wants to file for bankruptcy or not. When in doubt or to get clarity on your individual circumstances, it’s always best to ask an Expert.
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