When you’re facing financial hardship, a personal loan is an option to help make ends meet. When you take out a personal loan, you’re required to sign a document that outlines the terms of that loan. After reviewing loan terms, a common question people ask is “Can I sign away my right to file bankruptcy?” Here’s the answer to that.

Common Loan Terms Prohibiting Bankruptcy

All creditors want their loans to be repaid. Likewise, all debtors in an ideal world want to repay their debts. Unfortunately, life circumstances don’t always allow debt repayment to happen as initially planned. Therefore, creditors attempt to create loan terms that guarantee their loans will be repaid.

One of the most common lines in a loan term agreement is “I confirm and promise that I am not currently in bankruptcy proceedings nor am I planning on filing bankruptcy in the future.” Although it seems like this agreement prohibits the loan recipient from filing for bankruptcy, there are a few factors to consider.

  1. Any loan taken out AFTER filing for bankruptcy would automatically not be included in bankruptcy.
  2. Most people who take out loans do so as a last resort but do not PLAN on filing for bankruptcy.

In addition to these considerations, it’s also important to know what the law states about discharging debts in bankruptcy. 

Agreements Prohibiting Bankruptcy Are Not Enforceable

When Congress created modern-day bankruptcy laws, they did so to protect U.S. consumers against life-altering debt and fraudulent creditors. After all, if creditors are able to draft their loans so they can’t be discharged through bankruptcy, bankruptcy itself would become totally ineffective.

According to bankruptcy law, loan agreements that prohibit debtors from discharging debts in bankruptcy are not enforceable. If you have a debt you’d like discharged under bankruptcy, you can either waive or reaffirm the debt according to § 524(c) or  § 727(a)(10) of the law.

Bankruptcy Fraud

Although there are laws that prohibit lenders from excluding their loans from bankruptcy, it’s important to be transparent when taking out a loan. If you’ve talked to an attorney about filing for bankruptcy or plan to do so in the near future, it’s in your best interest to stay away from personal loans. 

If you’re charged with bankruptcy fraud, the penalties can be severe. Typical bankruptcy fraud penalties include fines up to $250,000 and 5 years in prison. It’s also important to note that even the intent to commit bankruptcy fraud is punishable by law. Therefore, if there’s any part of you that believes bankruptcy might be in your future, speak to an attorney before you sign on any dotted lines.

Experienced Chapter 7 & Chapter 13 Bankruptcy Attorneys

The attorneys at E. Orum Young Law are experienced and trustworthy bankruptcy attorneys. Over the course of 35 years, they have helped thousands of families get back on their feet financially. Members of the Louisiana Bar Association, the lawyers at E. Orum Young can help you decide whether Chapter 7 or Chapter 13 bankruptcy is right for you.

To schedule your free case review, call our office at 318-450-3192 or contact us online today! We look forward to meeting you soon!