“Can a secured loan be written off?”. In certain circumstances a secured loan can be written off.
Below are some of the possible scenarios where we have been asked about this:
- sole traders – for a sole trader who defaults on a secured loan, the consequences can be grave resulting in bankruptcy if the business loan remains unpaid. Going bankrupt will not automatically result in the secured loan being written off. For example, if the lender has taken security over the sole trader’s home in the form of a mortgage, this cannot be written off when the homeowner is declared bankrupt. The lender will have a right to repossess the property and take priority over other unsecured creditors. If however, once the lender sells the property there is still not enough money from the proceeds to pay off the debt, the remaining debt will be unsecured and the sole trader will be released from the debt at the end of his or her bankruptcy.
- negotiation – it may be possible for the sole trader to negotiate with the lender to get its loan written off. Generally this will not work unless certain special conditions arise, e.g. the borrower becomes terminally ill and there is no chance of repayment. Our team of legal experts can assist with such negotiations.
- unfair contract terms – recently there have been a number of cases where the borrower has challenged the terms of the loan agreement on the grounds of unfairness. Generally, this argument turns on whether the interest rate offered by the lender is “extortionate” and whether the lender has failed to undertake appropriate credit checks on the borrower to determine whether there is any chance of repayment.
It is not possible for a company to write off a secured loan. The company can be liquidated (eg put in to administration) and its assets will be then used to pay off any outstanding debts.
Our expert team of banking and finance solicitors at Francis Wilks & Jones are here to help you with your secured loan questions including helping with “Can a Secured Loan be Written off” tips booklet? Contact one of our team of expert friendly banking lawyers now for your and confidential consultation.