Most people opt for payday loans as they are an easy and convenient way to obtain credit. So, when you have declared Chapter 13 bankruptcy and a financial emergency comes up, can you get approved for a payday loan? Will it affect your bankruptcy case?
Keep on reading, or jump ahead to the section that interests you most.
According to the Consumer Financial Protection Bureau, a payday loan is a high-cost loan granted on a short-term basis.
Payday loans, also known as payday advances, have some distinct characteristics:
· It is often a small loan amount that ranges between $500 to $1000, and the loan should be repaid after two to four weeks of approval
· The interest on the loan is often high and attracts additional fees and costs
· A payday advance loan should be paid by the debtor on their next payday, usually by providing a post-dated check for the repayment date
· Some lenders will need the debtor to grant them consent and allow electronic debit that allows their company to access their account to withdraw the payoff amount directly
· In case the debtor is unable to repay the loan, some states have allowed payday loan companies to renew the loan or roll it over, however, it may attract more fees and costs
· They are dischargeable in bankruptcy depending on when the loan was taken
Payday loans have high percentage rates, with most having an annual percentage rate ranging between 300-400%, as they take advantage of desperate citizens who urgently need money but are not eligible for traditional credit due to their credit rating. However, most states have set a cap on how much a company can charge for a payday advance loan to protect the debtor.
Yes, you do. Most payday loans charge extremely high interest, and incurring a high-interest debt while Chapter 13 risks the court dismissing your case.
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Most people prefer payday loans because they are easily accessible. Payday loan lending companies do not focus on your financial situation provided you have proof of income which you will use to repay the loan. Therefore, they will barely look deep into your financial situation, and if you don't disclose you are in Chapter 13 bankruptcy, you might qualify for a payday loan.
However, as a debtor in Chapter 13 bankruptcy, you should not incur new debt without the court approving it. Thus, if you are considering taking on a new loan, including a payday loan, you should file a motion with the bankruptcy court to Incur Debt. Failure to notify the court or seek approval to incur the new debt will put your case at risk of dismissal.
The Chapter 13 trustee assigned to your case may object to you incurring a new debt, and so can your creditors. So, ensure you have a valid reason to incur the debt and have a solid debt repayment plan that will not affect your Chapter 13 payments. It is unlikely for a court to allow a debtor to take on a new debt, including a payday loan, while in bankruptcy.
Even though a Chapter 13 bankruptcy case helps you get rid of debt over a long period, there are times when the debtor may experience financial hardship. During these challenging times, some debtors opt to take out a payday loan with a solid repayment plan. However, the may realize that they cannot pay it off.
If you are unable to pay the loan, the best course of action is to notify your bankruptcy lawyer. Let them know about the payday loan when you took it, and your inability to repay. A bankruptcy attorney is better positioned to advise you.
In most cases, attorneys advise their debtors to dismiss their Chapter 13 case, depending on the specifics of your case. In other cases, they advise their debtors to convert their case into a Chapter 7 case, which will take a shorter time, and have their debts discharged in few months. If you are not eligible to file for Chapter 7 bankruptcy, your lawyer might advise you to refile Chapter 13 bankruptcy and include the recent payday loan in the filing.
It is worth noting that if you choose to refile bankruptcy immediately, the new payday loan will be non-dischargeable. Any debt taken within 70-90 days after filing bankruptcy is deemed fraudulent. It is fraud because the debtor knew they could not repay the debt but still went ahead and took out a loan. Therefore, the debt is considered non-dischargeable, and the lender can file an adversary proceeding to the bankruptcy court objecting to the discharge.
So, if refiling bankruptcy seems the best option, you will have to wait a few months before refiling. A bankruptcy attorney will discuss all these options with you and advise you on the best action to take.
It depends. However, most payday loans like payday advances are classified under unsecured loans and, thus, are dischargeable under Chapter 7 or 13 bankruptcy. Nevertheless, it is essential to consult a bankruptcy attorney if you took a payday loan after filing for bankruptcy. If you would like an estimate of a Chapter 13 payment plan, consider taking the Chapter 13 calculator below.
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Use our free bankruptcy and debt relief calculators to understand how to get out of debt. Have a question about debt relief or bankruptcy? Contact us at (408) 471-9125, contact us online, and get a free case evaluation.
While bankruptcy is a popular solution out of debt, there are other ways to get rid of debt. If you have been reading up on bankruptcy, and it does not sound like something you would like to proceed with, there are numerous other alternatives for you. For example, you could consider home co-investment, which is different from HELOC and reverse mortgage and doesn't need monthly payments.
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