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Growing personal loans could lead to Chapter 7 bankruptcy

Borrowing against home and auto loans is much less appealing than it once was, and understandably so -- many California consumers saw the repercussions of these moves during the Great Recession. However, some people's need for quick access to cash during difficult times still exists. Personal loans are rapidly growing to meet this need, but there is a chance it could also lead toward Chapter 7 bankruptcy.

Personal loans are nothing new and indeed have been around since the inception of banking. However, they tend to be less popular than specific lending products, such as mortgages, auto loans and even credit cards. These are typically unsecured loans, so the interest rates tend to be higher.

In the first quarter of 2018, outstanding balances for personal loans accounted for about $120 billion of national debt. LendingClub -- a web-based firm -- noted that it lent $2.1 billion in personal loans during the quarter, which is about 20 percent more than it did during the same time in 2017. Other banks reported similar increases in personal loans.

Consumers seek out personal loans for a variety of reasons, not all of which are financial emergencies. One out-of-state couple took out a three-year personal loan for a little under $10,000 to help fund their adoption of a child. The interest rate on that loan is 23 percent.

Most people who take out personal loans expect to repay them. Unfortunately, life gets in the way of even the best-laid plans, and consumers in California may find themselves dealing with more debt than they can ever hope to pay back. In such cases, Chapter 7 bankruptcy often provides a path toward a future with a better financial outlook.

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