It’s a few days from payday. The kitchen is empty. Bills have to be paid. Somehow, you’ve got to find the money to cover it all. “No problem,” you think. Payday loans are available and you can get enough money to cover the bills until your check comes.
For many, this becomes a regular occurrence, and the debt and interest start to pile up. Applying for a “payday loan” or “cash advance” is often a last ditch effort to avoid filing bankruptcy. Unfortunately, this can lead to complications when it comes to finding relief from the debt they are struggling under.
If this scenario sounds familiar, it’s important to understand how payday loans work in relation to bankruptcy.
What is a payday loan?
According to the Consumer Financial Protection Bureau, a payday loan is described as:
“While there is no set definition of a payday loan, it is usually a short-term, high cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans may be available through storefront payday lenders or online.”
When applying for a payday loan, it is important to remember that the lender usually will require you to authorize an electronic debit of the payoff amount, including fees, when the loan is issued. Other financial obligations are not taken into consideration when a lender determines your ability to pay back the loan.
If I end up filing bankruptcy, can my payday loans be discharged?
Payday loans are considered “unsecured debt.” This means that there is no property serving as collateral against the debt. Most unsecured debt can be discharged when filing Chapter 7 bankruptcy. Unsecured debt may be included in the court structured repayment plan in a Chapter 13 bankruptcy. This repayment plan allows the debtor to repay the debt over time.
When filing for bankruptcy, there is an option to have all or a portion of these types of debts removed. This is called a hardship provision. Your bankruptcy attorney can help you to determine if this is an option for your personal situation.
Payday loan collections
Often, payday loan companies employ deceptive tactics to ensure repayment, regardless of a bankruptcy filing. It is important to know your rights so that you are not confused or deceived.
• Paperwork disclaimers: Lenders will sometimes include a disclaimer in your paperwork stating that the debt cannot be discharged in bankruptcy. This statement has no basis in law and is inaccurate. As with any other unsecured loan, cash advances and payday loans are often able to be discharged in bankruptcy court.
Understanding the process
With guidance from an experienced bankruptcy lawyer and a little bit of knowledge, you can be sure that you are protected during your bankruptcy filing. Here are a few key truths about payday loans and bankruptcy:
• New loans unlikely to be discharged in bankruptcy : If you have loans that are less than 60-90 days old, the court will likely rule in favor of the lender. The court will assume that any loans taken out this close to filing for bankruptcy were taken out in the anticipation of filing, and without intent to pay back.
• Payday loans and monthly renewals : Some payday loans automatically renew every month until they are repaid in full. Some lenders will try to use this to their advantage by telling the bankruptcy court that the loan is newer than 60 days old. You and your bankruptcy attorney can help the court make the decision that is best for you by making sure that the court is aware of the initial date of the loan. The court will often take into consideration the nature of these types of loan agencies and refer to the date the loan was originally obtained.
• Post-dated prevention : If a lender has a post dated check for an amount that you cannot afford to pay, protect yourself. Many people just close the bank account. Alternatively, you can pay a small fee to the bank to stop payment on that check. This will give you time to manage the debt through the court without the additional stress of the loss of those funds.
The purpose of bankruptcy is to help borrowers who have gotten in over their heads with lenders. Filing bankruptcy can be a sort of “reset” button for debtors. Bankruptcy Court must balance the interest of borrowers and lenders, alike. Bankruptcy has helped many people find relief from expensive payday loans, and get a fresh financial start once again. With the right lawyer at your side, the court will be able to make the most informed decision as they attempt to carry out the law and help you find relief from your overwhelming debt.
The attorneys at Hall & Navarro have decades of experience with the local courts. They know the bankruptcy process well. They have helped hundreds of people find relief from overwhelming debt, and get a fresh financial start. If you or a loved one need help from payday loans or any other burden of debt, take the first step by completing our free online case evaluation. Our legal team will then contact you to arrange a consultation to see if filing bankruptcy could help you.