Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.
Let's face it, financial crises happen to everyone. Whether it's an unexpected car repair, an illness that keeps you or your child out of work, or a sudden home repair, bills can pile up quickly. When you're struggling to make ends meet and need to buy groceries, it's easy to feel like you're out of options. That's why many people turn to PayDay loans for help. These loans can provide quick cash to help you get by, but unfortunately, they can also trap you in a vicious cycle of debt that may not be forgivable in a Chapter 7 bankruptcy case.
The good news is that there are options to get rid of PayDay loans. In this article, we'll focus on one of those options: filing for bankruptcy. While it's not always the best solution, it can be a way to eliminate debt and get a fresh start.
It's important to note that not all PayDay loans are created equal. They come in a variety of forms, ranging from two weeks to three months. Depending on the terms of your loan and your specific financial situation, bankruptcy may or may not be a viable option for you.
If you're struggling with PayDay loan debt, it's important to explore all of your options. Filing for bankruptcy may be a solution, but it's not the only one. By working with a financial professional, you can create a plan to get out of debt and regain control of your finances.
1. Do you qualify for bankruptcy?
Are you considering bankruptcy and wondering if payday loans can be discharged? It's essential to take the first step and estimate whether you qualify for bankruptcy, weigh the pros and cons, and compare your options. Luckily, you can use a free bankruptcy calculator to do so.
By using the bankruptcy calculator, you can get an idea of the estimated cost of bankruptcy and determine if you qualify for Chapter 7 or Chapter 13 bankruptcy. Keep in mind that while payday loans may or may not be dischargeable, bankruptcy can provide relief from other debts and give you a fresh start.
2. Can I Include Payday Loans in My Chapter 7 Bankruptcy Case?
If you've taken out a PayDay loan and are considering filing for Chapter 7 bankruptcy, it's important to know that you must include the debt in your bankruptcy schedules. This is true for all debts, whether they can be discharged or not. PayDay loans are considered unsecured loans, which means they don't require collateral. In most cases, unsecured debts are eligible for discharge in Chapter 7 bankruptcy. However, it's possible that your PayDay loans may not be dischargeable in certain situations.
While it's important to include all debts in your bankruptcy filing, it's also important to understand that PayDay loans can present unique challenges. These loans often come with high interest rates and fees, which can make it difficult to pay them off even after bankruptcy. Additionally, some lenders may aggressively pursue repayment even after the debt has been discharged. It's important to work with an experienced bankruptcy attorney who can help you navigate these challenges and ensure that your rights are protected throughout the process.
Debts Incurred Shortly Before Filing Bankruptcy
If you're considering filing for bankruptcy relief, it's important to know that debts incurred between 60 and 90 days before filing may not be eligible for discharge. This means that you may still be responsible for paying back those loans even after filing for bankruptcy.
It's also worth noting that loans taken out in anticipation of filing for bankruptcy cannot be discharged. This is because the court assumes that these debts are fraudulent since you incurred them with the intention of filing for bankruptcy instead of repaying the debt.
PayDay loans can be particularly problematic in this regard because they often automatically renew every 30 to 60 days. As a result, lenders may argue that these debts are non-dischargeable because they were incurred within 60 to 90 days of filing for Chapter 7 bankruptcy.
Agreements Prohibiting You From Including PayDay Loans in Bankruptcy
Did you know that some lenders try to include clauses in PayDay loan paperwork stating that the loan cannot be discharged in bankruptcy? This is not legal and has no effect on the loan's dischargeability. Even if such a clause is present, if the PayDay loan debt is eligible for discharge under federal bankruptcy laws, the court can still discharge it. So, don't be fooled by these illegal tactics!
Legal Treats for Bad Checks
Have you ever received a post-dated check or signed an agreement for automatic withdrawals, only to realize that you don't have enough funds to cover it? It can be a stressful situation, especially if the lender threatens to take legal action against you.
However, it's important to know that in most cases, the lender's threat of jail time for closing your bank account to prevent a post-dated check or ACH withdrawal is not valid. The reason being, the lender was already aware that you didn't have enough funds to cover the payment when they accepted the check or signed the agreement with you.
So, if you're ever in this situation, don't panic. Instead, try to work with the lender to come up with a solution that works for both parties. You can also seek advice from a financial advisor or credit counselor to help you manage your finances better and avoid similar situations in the future.
Will I Get Into Trouble With My Chapter 7 if I Just Took Out a PayDay Loan?
Don't worry about facing any legal consequences if you file for Chapter 7 bankruptcy right after taking out a PayDay loan. However, keep in mind that a recent loan may not be eligible for discharge under bankruptcy. In case the lender raises an objection to the discharge, you may still be liable to repay the PayDay loan even after filing for bankruptcy.
Although it may seem like a quick fix, taking out a PayDay loan can have long-term consequences. These loans often come with high interest rates and fees, making it difficult for borrowers to repay them on time. If you find yourself struggling with debt, bankruptcy may be a viable option to get back on track financially. But it's crucial to understand the potential limitations and challenges that come with it.
State Laws Vary Regarding PayDay Loans
Have you ever found yourself in a financial bind and turned to a PayDay loan for help? While they may seem like a quick fix, these loans can be incredibly harmful to consumers. That's why many states have enacted laws to regulate them. For example, in some states, PayDay loan companies are not allowed to automatically renew a loan, which can be a huge benefit for borrowers.
By preventing automatic renewals, borrowers have the opportunity to wait a few months and then file for Chapter 7 bankruptcy, which can help eliminate the debt. It's important to note, however, that filing for bankruptcy should always be a last resort and can have long-term consequences. So, while these laws can be helpful, it's still crucial to carefully consider all options before taking out a PayDay loan.
3. How Do Payday Loans Work?
PayDay loans, also known as cash advances, paycheck advances, or payday advances, are short-term loans for small amounts. The due date for the loan is typically within two to four weeks, and it is generally paid in a lump sum. To obtain a PayDay loan, most companies require borrowers to submit a post-dated check for the full payoff amount, including interest and fees. Alternatively, some lenders may require borrowers to sign an ACH authorization to electronically withdraw the loan payoff from their bank account on a specific date.
While some PayDay loans may be "rolled over" or renewed, borrowers may be required to pay the interest and fees due, but the loan's principal amount is extended for another period. The fees and interest for PayDay loans can be extremely high, with some lenders charging fees that can equal an APR of 400% or more. Unfortunately, PayDay loans often make money problems worse. Some individuals become trapped in a cycle of paying interest and fees to continue to roll over loans because they cannot afford to pay off the original loan balance. Others borrow more money to pay off PayDay loans, which only adds to their debt problems.
It is important to note that the Consumer Financial Protection Bureau (CFPB) does not provide a standard definition for a PayDay loan. However, understanding the common characteristics of PayDay loans can help borrowers make informed decisions about their finances and avoid falling into debt traps.
4. Should I Talk to a Chapter 7 Bankruptcy Lawyer About PayDay Loans?
If you're considering filing for bankruptcy due to PayDay loans, it's a good idea to consult a Chapter 7 bankruptcy attorney in your area. Since PayDay loans and state laws vary, having an experienced attorney review your case before filing for bankruptcy relief is the best course of action.
Your attorney will guide you through the specific steps needed to eliminate PayDay loans through the bankruptcy process. Depending on your situation, they may recommend closing your bank account and waiting three months before filing a Chapter 7 case. If your loan doesn't renew, you may only need to wait a couple of months after the due date to file your Chapter 7 case.
There may be other options to get rid of PayDay loans in bankruptcy, but each situation is unique. Therefore, it's impossible to determine whether a PayDay loan is dischargeable in Chapter 7 until an attorney reviews your loan agreement and assesses your entire financial situation.
5. How Do I Find a Chapter 7 Bankruptcy Lawyer for PayDay Loans?
Dealing with bankruptcy can be overwhelming, but we are here to help you find a bankruptcy lawyer in your area who offers a free bankruptcy consultation. To make the process even easier, we offer a Bankruptcy Attorney Fee Estimator that helps you find an attorney and estimate how much they charge in your area.
Don't worry, there is life after bankruptcy, and you may be able to get another loan even after filing. If you are considering a Chapter 13 bankruptcy case, our free Chapter 13 bankruptcy calculator can help you estimate your bankruptcy plan payments.
When you're ready to take control of your debt, contact us online. We want to give you the resources and information you need to get out of debt using the best debt relief solution for your situation.