Debts that can be erased by bankruptcy are called dischargeable debts. Most payday loans are dischargeable. Other common types of dischargeable debts include credit card debts, medical bills, personal loans, and overdue utility bills. At the end of a successful Chapter 7 case, the bankruptcy court will issue a bankruptcy discharge order. This is the court order that erases your obligation to pay back your dischargeable debts listed in your bankruptcy filing.
By contrast, a Chapter 13 bankruptcy is a reorganization of debts and creates a year repayment plan. You may pay back all, most, or some of your debts through your Chapter 13 payments. Chapter 13 allows you to pay off your non-dischargeable debts. Any balances on payday loans will be erased at the end of a successful Chapter 13 when the bankruptcy court enters the bankruptcy discharge order.
Payday loans or a cash advance taken out within 90 days of filing for bankruptcy can create problems. A payday lender could file an adversary proceeding with the bankruptcy court challenging the dischargeability of the payday loan debts you owe them. This means that the bankruptcy court could find that you had no intention of paying back the loan and it can rule the debt nondischargeable — meaning you would have to pay back the payday loan debt even after bankruptcy.
Upsolve Community Member How do payday loans impact bankruptcy? Being garnished for a old payday loan. Is it worth bankruptcy for that Routinely taking out payday loans can spiral into a debt problem that requires a long-term solution. Chapter 7 and Chapter 13 bankruptcies can provide relief from payday lenders. The simple answer to this question is yes and you must include payday loans in your bankruptcy filing if you have them. A debtor signs his or her bankruptcy petition under penalty of perjury which is a verification that those persons or companies to whom the debtor owes money have been listed as a creditor.
Failure to list the payday loan can result in a finding that the bankruptcy has been filed in bad faith and the case can be dismissed, or worse, that the debtor has committed bankruptcy fraud by failing to list and can be subject to federal prosecution.
Payday loans are a scourge upon humanity, in my opinion, due to the egregious amount of interest charged for the loans. However, I completely understand why clients who come into my office have resorted to such loans. These folks have been backed into a corner and feel they have very few reasonable alternatives to dealing with their debt. As a result, they will give the payday lender a check to hold made payable in an amount they know they do not have the funds to cover.
And here is the troubling part…. Payday loans are quick turnaround cash loans that supposedly benefit the borrower in a time of need. The payday loans, however, come at a steep price.
Namely, the high-interest rates and fees of these loans can easily trap the borrower in an endless cycle of debt. The Alabama Legislature instituted the following rules and regulations to restrict payday lending in the state:. Payday Loans in Bankruptcy. Learn what happens to payday loans in bankruptcy, and some special issues regarding these cash advances. Creditor Challenges to Payday Loans in Bankruptcy Most people intend to pay for the things that they buy on credit—which is a good thing.
What Is Presumptive Fraud? Was there fraudulent intent? Many times, payday loans are not one-time loans or advances. Instead, a borrower falls into a long-term pattern of taking payday advances to pay the exorbitant finance charges and balances on prior payday advances. Because of this cycle, borrowers end up relying on the high-interest payday loans as a source of income. In this situation, courts often find that 1 there was no fraudulent intent, and 2 that the payday loan is a single debt that dates back further than the most recent payday advance.
Consequences of a fraud finding. You want to avoid fraud allegations in bankruptcy court. The consequences of a fraud finding can include not receiving a discharge for the debt, the dismissal of your case, or, in some cases, criminal fines and imprisonment. Simply put, it's not worth the risk. Avoiding Problems With a Payday Loan in Bankruptcy Of course, you could lose your discharge if a payday lender can prove a fraud case.
Rather than deal with the time, money, and risk of fighting a discharge objection by a payday lender, you might be able to avoid this problem by: not taking any loans shortly before filing for bankruptcy, or filing Chapter 13 bankruptcy and paying the debt through your repayment plan. Problems With Post-Dated Checks It's common for payday lenders to require an active checking account.
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