Can I include my payday loans if I file bankruptcy?
A payday loan is a cash advance or short-term loan given to a borrower until they are paid again. The payday loan is generally for a small amount of money, but they may allow the lender access to your checking account or the lender may require a post-dated check written for the balance of the loan which they will cash on a specific date. Payday loans often have an extremely high rate of interest. For example, some payday loans may charge up to 300% interest.
Discharging payday loans through bankruptcy
Chapter 7 bankruptcy may be used to discharge most payday loans, which are considered unsecured debts. Other unsecured debts or debts which are not secured with collateral and may be discharged through bankruptcy include medical bills, credit card debts, and personal loans.
If you do not qualify to file Chapter 7 bankruptcy, however, and you choose to file Chapter 13 bankruptcy, you may be required to repay a portion of your of your payday loans through your debt repayment plan.
Exceptions to payday loans discharges
There are specific times, however, when the creditor may choose to challenge the discharge of a payday loan. Bankruptcy will allow debtors to have a fresh financial start, but it should not be used by debtors to charge or spend a considerable amount of money they have no intention of repaying.
For instance, the bankruptcy court may consider any loans which are borrowed within 70 to 90 days before the bankruptcy filing for more than $750.00 to be considered fraudulent. In most cases, if the court decides the charge was fraudulent, it will be non-dischargeable in the bankruptcy filing.
If you have payday loans which have been acquired after the cut-off date the payday loan company may challenge the dischargeability of the loan and attempt to prove you took the loan without any intention of repaying the debt. Some bankruptcy courts have a negative view of the current payday lending practices and may require the lender to prove your actions were fraudulent.
The court may decide to discharge the payday loan if they believe there was no fraudulent intent on the part of the borrower, and the payday loan was a single debt that dates back further than the most recent payday advance.
Problems with dischargeability can be avoided if you wait at least 90 days after your last payday advance to file bankruptcy or you file Chapter 13 bankruptcy and commit to repaying a portion of the payday loan. Contact a bankruptcy lawyer for more information if you need them to review your payday loans.
Other issues to consider
Garnishments, liens, foreclosures, repossessions, lawsuits, and other collections efforts are stopped through an automatic stay when you file your bankruptcy petition. If you have given a post dated check to the payday lender and they cash your check, this could also be considered a violation of the automatic stay, but keep in mind, it can be more difficult to execute the judgment for sanctions against a payday lender. Talk to a lawyer if you have questions about your post-dated check.
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An automatic stay allows a debtor time to reorganize their finances without creditor harassment.