Personal Loans in Bankruptcy: Discharge, Cosigners, and Repayment Timing

Does bankruptcy actually cover a personal loan?

In most consumer cases, yes. A personal loan from a bank, credit union, online lender, or finance company is normally an unsecured debt, meaning the lender has no rights against specific property. Creditors with unsecured claims are listed on Schedule E/F, and, as the Middle District of Alabama's guide explains, a discharge releases a debtor from personal liability for dischargeable debts incurred before the filing and prevents those creditors from taking any action to collect them, including calls and letters. The District of Arizona's chapter guide puts the underlying rule plainly: all debts are dischargeable unless a specific provision of the Bankruptcy Code defines them as nondischargeable. The Code's list of exceptions in 11 U.S.C. § 523 covers categories like certain taxes, domestic support, and student loans. There is no category-wide exception for ordinary personal or signature loans, which is why they generally travel with credit card balances and medical bills in a consumer case.

• Unsecured personal loan: no collateral, listed on Schedule E/F (Official Form 106E/F).
• Secured personal loan: the lender took a lien on property, listed on Schedule D instead.
• A discharge wipes personal liability; it does not remove a valid lien on property.

What can make a specific personal loan nondischargeable?

The main risk is 11 U.S.C. § 523(a)(2), which excepts from discharge a debt for money, property, services, or an extension, renewal, or refinancing of credit obtained by false pretenses, a false representation, or actual fraud. A separate route applies to written statements: a debt is excepted where the debtor used a statement in writing that is materially false, respects the debtor's or an insider's financial condition, was reasonably relied on by the creditor, and was caused to be made or published with intent to deceive. All four elements must be present. As the Alaska court's filing packet notes, you may still be responsible after discharge for debts arising from fraud or theft. In practice, a loan application overstating income or hiding existing debts is the fact pattern lenders raise. Honest inability to repay is not fraud, and an ordinary loan you simply could not afford is not what this section targets.

What does federal law say about recent borrowing?

Timing matters. Section 523(a)(2)(C) creates presumptions of nondischargeability for two categories of very recent consumer borrowing. Consumer debts owed to a single creditor and aggregating more than a threshold amount for luxury goods or services incurred on or within 90 days before the order for relief are presumed nondischargeable. Cash advances aggregating more than a threshold amount that are extensions of consumer credit under an open end credit plan obtained on or within 70 days before the order for relief carry the same presumption. The statutory dollar figures in the printed text of § 523(a)(2)(C) are adjusted periodically, and we do not publish a verified current figure for them here, so treat the windows rather than the amounts as the useful signal. The statute also says the term luxury goods or services does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent.

• 90 days before the order for relief: luxury goods or services from a single creditor.
• 70 days before the order for relief: cash advances under an open end credit plan.
• Necessities for you or a dependent are excluded from the luxury goods definition.

What happens to a cosigned personal loan?

A discharge releases you, not the person who signed with you. Once your personal liability is gone, the lender can still pursue the cosigner on the full balance, which is why a cosigned loan often drives the choice of chapter. Chapter 13 adds a protection Chapter 7 does not have. Under 11 U.S.C. § 1301, after the order for relief a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual who is liable on that debt with the debtor, unless the individual became liable in the ordinary course of that individual's business or the case is closed, dismissed, or converted. The codebtor stay is not permanent. A creditor can ask the court to lift it, including where the plan proposes not to pay the claim, and the stay terminates 20 days after such a request unless a written objection is filed and served.

Why is paying back a family loan before filing a problem?

Because the trustee can undo it. Under 11 U.S.C. § 547, the trustee may avoid a transfer of an interest of the debtor in property made to or for the benefit of a creditor, on account of an antecedent debt, while the debtor was insolvent, that lets the creditor receive more than it would in a Chapter 7 distribution. The lookback is on or within 90 days before the filing of the petition, and it stretches to between 90 days and one year where the creditor was an insider at the time of the transfer. Relatives commonly fall into the insider category, so repaying a parent or sibling ten months before filing can still be reached. If the transfer is avoided, the trustee recovers the money from the person you paid, not from you. That is why the instinct to make one person whole before filing often produces the opposite of the intended result.

• 90 days before filing: transfers to ordinary creditors.
• 90 days to one year before filing: transfers to insiders.
• The statute has defenses, including contemporaneous exchange for new value and payments made in the ordinary course.

Where do state or local rules change the picture?

Dischargeability of a personal loan is federal and does not vary state to state. Two adjacent questions do. First, exemptions: 11 U.S.C. § 522 lets a debtor exempt property either under the federal list in subsection (d) or under the law of the state applicable to the debtor, subject to a domicile rule keyed to where the debtor lived for the 730 days before filing. Which set applies and how much it covers is a state question, and those amounts live on the state pages rather than here. Second, procedure: local rules and forms differ by district, and courts publish their own filing packets and instructions. The Arizona court's instructions also note that whether your income is above your state's median determines which means-test forms you file. Use the court finder to reach your district, and the state hub for exemption figures.

• Dischargeability of a personal loan: federal, uniform.
• Exemption amounts and the federal-versus-state election: governed by 11 U.S.C. § 522 and state law.
• Median income figures and local forms: district and state specific.

What documents and information are involved?

Personal loans surface in several places in the paperwork. Unsecured personal loans go on Schedule E/F, the form identifying everyone with an unsecured claim as of the petition date. If the lender took collateral, the debt belongs on Schedule D instead. Anyone who signed with you goes on Schedule H, the codebtor schedule. Claims are listed even if they are contingent, unliquidated, or disputed. The Alaska packet gives a useful example of a contingent claim: if you cosigned someone else's note, you may not have to pay unless that person later fails to repay the loan. Beyond the schedules, expect to gather the loan agreement, the original application, statements showing the balance and payment history, and records of any payments made in the year before filing. That last category is what a trustee reviews for preference questions under § 547.

• Schedule E/F (Official Form 106E/F) — unsecured claims, including personal loans.
• Schedule D — any personal loan secured by property.
• Schedule H (Official Form 106H) — codebtors, including cosigners.
• Loan agreements, applications, statements, and a record of payments made in the past year.

What should you ask a lawyer about your loans?

Bring the specifics, not just totals. A lawyer can tell you how a particular loan is likely to be treated, and clerks cannot: as the Middle District of Alabama's guide states, the court and clerk's office cannot give legal advice. Useful questions include how the loan application you signed would be viewed under § 523(a)(2)(B), whether any recent borrowing falls inside the § 523(a)(2)(C) windows, and whether payments you have already made to family could be recovered as preferences. Ask which chapter better fits a cosigned loan, given that only Chapter 13 carries a codebtor stay. Costs are also fair game: a Chapter 7 case carries a $245 filing fee (28 U.S.C. § 1930(a)(1)(A), (f)(1)), a $78 administrative fee, and a $15 trustee surcharge, while a Chapter 13 case carries a $235 filing fee (28 U.S.C. § 1930(a)(1)(B)) plus a $78 administrative fee.

• Bring loan agreements, applications, and 12 months of payment records.
• Flag any borrowing in the last three months and any repayment to relatives in the last year.
• Ask how a cosigner would be affected under each chapter.

Frequently asked questions

Are signature loans treated differently from other personal loans?

Generally no. A signature loan is simply an unsecured personal loan with no collateral, so it is listed with other unsecured claims on Schedule E/F and is dischargeable unless a specific provision of the Bankruptcy Code applies to it. The label the lender uses does not change the analysis; whether the lender holds a lien on property does, because a secured loan belongs on Schedule D instead.

Can a lender object just because I borrowed shortly before filing?

A lender can object, and recent borrowing draws more attention. Under 11 U.S.C. § 523(a)(2)(C), consumer debts to a single creditor for luxury goods or services incurred within 90 days before the order for relief, and cash advances under an open end credit plan obtained within 70 days, carry presumptions of nondischargeability. The statute excludes goods or services reasonably necessary for the support of you or a dependent.

Will my cosigner be protected if I file Chapter 13?

Chapter 13 provides a codebtor stay under 11 U.S.C. § 1301 that generally bars a creditor from collecting a consumer debt from an individual liable with you. It is not absolute. It does not apply where the individual became liable in the ordinary course of that individual's business, it ends if the case is closed, dismissed, or converted, and a creditor can ask the court for relief from it.

I already paid back my brother. What happens now?

Tell your lawyer before filing. Under 11 U.S.C. § 547, a trustee may avoid a qualifying transfer made within 90 days before the petition, or within one year where the creditor was an insider at the time. Relatives commonly qualify as insiders. If the transfer is avoided, the trustee generally recovers the funds from the person you paid rather than from you.

Does a discharge stop the lender from calling me?

A discharge prohibits creditors owed discharged debts from taking any action to collect them, including telephone calls, letters, and personal contact, according to the Middle District of Alabama's pro se guide. Before discharge, filing generally triggers an automatic stay that halts most collection activity. Neither stops a secured creditor from enforcing a valid lien if payments are not kept up.

What does it cost to file?

A Chapter 7 case carries a $245 filing fee, a $78 administrative fee, and a $15 trustee surcharge. A Chapter 13 case carries a $235 filing fee and a $78 administrative fee. The Chapter 7 filing fee may be waived only conditionally under 28 U.S.C. § 1930(f) and Judiciary procedures; the statute permits installment payment for an individual commencing a voluntary or joint case.

Can I leave one personal loan out and keep paying it?

Every creditor must be listed. Section 523(a)(3) excepts from discharge debts that are neither listed nor scheduled in time for the creditor to act, and the Alaska filing packet notes you may still be responsible for certain debts not listed in your bankruptcy papers. Voluntarily repaying a listed debt after discharge is a separate question, and a reaffirmation agreement is a formal step to discuss with counsel.

Does bankruptcy remove a lien if my personal loan was secured?

No. A discharge releases personal liability but does not by itself remove a valid lien. As the Middle District of Alabama's guide explains, the discharge does not prevent secured creditors from seizing collateral if payments are not kept up, and a creditor may enforce a lien that was not eliminated in the case. Lien-related relief is a distinct request handled inside the bankruptcy.

Sources

• 11 U.S.C. § 523 — Exceptions to discharge · official source
• 11 U.S.C. § 547 — Preferences · official source
• 11 U.S.C. § 1301 — Stay of action against codebtor · official source
• 11 U.S.C. § 1201 — Stay of action against codebtor (chapter 12)
• 11 U.S.C. § 522 — Exemptions · official source
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• U.S. Bankr. Ct. D. Alaska, The Forms Individuals and Married Couples Need to File Bankruptcy
• U.S. Bankr. Ct. D. Ariz., Instructions for Completing the Bankruptcy Petition, Schedules and Statements
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

Related

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• The automatic stay
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