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Is an unsecured business loan dischargeable in a no-asset chapter 7 bankruptcy?

Forest Park, IL |

I made an unsecured business loan to an individual. This person is now filing a no-asset chapter 7 bankruptcy. Will the business loan be considered dischargeable, or do can I dispute it since it was not a personal loan.

Attorney Answers 3


  1. There is a lot more to this question than can be answered with the information available. Generally, yes, an individual debtor's responsibility for an unsecured business debt will be discharged in a no-asset Chapter 7 case.

    The bankruptcy documents should be examined, however, to confirm that it is a no-asset case and to uncover other issues. For example, objections to discharge (such as fraud) can be considered, recent payments to other creditors can raise issues, . . .

    If the business was a sole proprietorship, then the individual filing bankruptcy, absent assets or some objection to discharge, likely is the end of it. If the business was separately organized, for example as a corporation, then the claim against the business would remain, but there is a likelihood the business is without value/assets.

    An attorney should review the specifics of your transaction, review the bankruptcy documents and, if it warrants the additional cost, attend the bankruptcy meeting of creditors.

    If you do not find it worthwhile to hire an attorney, you can also choose to attend the meeting of creditors on your own. You can consider the information in the trustee's examination and ask relevant questions yourself.


  2. In addition to what Mr. Repay recommends, you must consider what, if any, representations were made to you at the time you were approached about the loan.

    If the bankrupt debtor made material misrepresentations to you and you reasonably relied on those misrepresentations, you may be able to have the court declare the debt nondischargeable. This would require the filing of an adversary proceeding and would likely have to be done by an attorney you hire. If there is enough money at stake, it may be worth looking into (or, rather, having a bankruptcy attorney look into for you).

    BE AWARE that there are strict deadlines for filing such adversary proceedings seeking to have a debt declared nondischargeable. You can ask for an extension of the deadline but MUST make the request BEFORE the time runs.


  3. I agree with Attorney Repay and Davis' answers. I could add that you look at the amount of loan made to the individual before deciding to attack the bankruptcy to make sure it's worth the time and hassle (let alone money).

    Good luck with your situation.

    Matthew Williamson

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