How Do You Discharge a Loan?


Quick Answer

A personal loan may be discharged by filing for bankruptcy or under special conditions defined by a lender, according to Bankrate. Personal loans are usually classified as unsecured debts and are usually discharged when the borrower files for bankruptcy under Chapter 7 or Chapter 13, the Houston Chronicle reports.

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Full Answer

Individuals or sole proprietors of businesses must file for bankruptcy under Chapter 7 in order to discharge personal loans, payday loans, credit cards and other forms of unsecured debts that carry no collateral. Some states may allow a business owner to continue the business by applying for a bankruptcy exemption. However, all credit cards and personal loans are usually the first debts to be discharged, according to the Houston Chronicle. The discharge of the loan usually means that the borrower is neither required to repay the creditor nor surrender any collateral. However, the borrower's credit score may be adversely affected for a period of ten years.

Student loans are another type of debt that may be discharged without filing for bankruptcy, according to the FedLoan Servicing. The discharge of a student loan may occur under several conditions including the closure of the school or sufficient evidence that the student is unable to benefit from the course.

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