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Whats the difference between defaulting on a loan, just not paying it, and filing for bankruptcy?

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Whats the difference between defaulting on a loan, just not paying it, and filing for bankruptcy?

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  1. First of all, if you don't pay the loan, it will eventually go into default.  

    There is typically a clause in your loan called an "acceleration clause".  This means, once the loan goes into default, the lender can now call the entire loan due and payable. Until this time, the lender can only require payments. This allows the lender to pursue legal courses to sue you and collect the money by seizing your bank account or garnishing your wages.

    A general misconception is that, when a loan goes into default or gets "written off" then the borrower no longer owes the money.  This is incorrect.  The real answer here is that a loan is considered an assett to the lender until is goes into default.  At that point, the debt is no longer considered an assett but the borrower still owes the money.

    Finally, there are two types of personal bankruptcy, chapter 7 and chapter 13. A chapter 13 is the "bad" kind of bankruptcy and requires you to pay back a portion of your debt. If you qualify for a chapter 7 bankruptcy, then your debt simply goes away.  

    It's a bit more complicated than this but a real answer would take more room than I have here to answer.  However this should give you a general idea.  


  2. That depends on several things.

    1. How long had loan

    2. May not be eligible for bankruptcy

    3. If to new loan, you can be charged with fraud.

    Given all this info, the bankruptcy judge may not warrant the loan to be discharged, thus you still owe it. Second, even if declare it and judge agrees to dispose it, depending on loan length, you could still be charged with fraud.

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