Sometimes the information on your loan application isn’t 100% correct. Filing bankruptcy may call this bird home to roost.
Over the past 18 years of representing people filing for bankruptcy I’ve seen a few who were less-than-accurate on loan applications.
For some, it was a problem. For others, not so much.
Here’s how it’s likely to shake out in the context of an unsecured loan – one that isn’t attached to a car, home, or other asset.
A Recently Submitted Loan Application
When you submit a loan application you’ve got to provide information about your income and, in some cases, other expenses or the use of the funds. The lender relies on those disclosures in making the decision to approve the loan.
If you took out the loan and promptly filed for bankruptcy, that’s going to look bad for you. A lender is likely to bring an action to deny your discharge of their debt (not the entire case, just the amount you owe to them).
In connection with proving fraud, the lender will likely use your loan application against you. It may or may not be enough, but it sure is damning evidence of underhandedness on your part.
The Case Of The Older Loan
In contrast, let’s look at the loan application that was submitted years ago. You made some misstatements, but you made significant payments on the loan before falling behind and, ultimately, filing for bankruptcy.
If the lender brings an action to deny the discharge of their debt, they’re the one with the burden of proof. In other words, the lender needs to prove that you incurred that debt with the intent to escape liability.
That repayment stream is going to pose a problem for the lender because it goes against their argument that you never intended to repay the loan.
After all, who repays a debt that they don’t intend to repay?
One Factor Among Many
The bottom line is that false information on your loan application does not, in and of itself, mean you incurred the debt with the intent to defraud the creditor.
In order for your debt to survive the bankruptcy filing, it is for the creditor to not only bring an action against you but also to prove their claims.
Yes, the false information may come back to haunt you. But it is not the sole factor leading to a decision one way or another. Your bankruptcy lawyer can guide you at the beginning of the professional relationship, as well as if the creditor takes action.
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