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? Find out below.
What Qualifies as a Payday Loan?
According to the Consumer Financial Protection Bureau, a payday loan is a high-cost loan granted on a short-term basis.
What are the characteristics of a payday loan?
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, although it attracts 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.
Do I Risk the Court Dismissing my Chapter 13 Case if I Apply for a Payday Loan?
Yes, you do. Most payday loans charge extremely high interest, and incurring a high-interest debt while in Chapter 13 risks the court dismissing your case,
Unfortunately, most debtors are unaware of how new loan applications affect their case. There are limited resources on bankruptcy, what happens in bankruptcy, non-bankruptcy debt relief options, and so much more on debt. So, we developed a debt cost and options calculator which offers debtors personalized estimates of different debt relief programs. The calculator also shares the advantages and disadvantages of each option with the debtor, depending on their financial situation.
Our calculator has helped thousands of debtors choose the best way out of debt. The calculator has a 5-star rating on Google, with more than 100 reviews. Use the calculator today and evaluate your options should the bankruptcy court dismiss your case.
Can I Get a Payday Loan Approved in Chapter 13 Bankruptcy?
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 which will not affect your Chapter 13 payments. Still, it is unlikely for a court to allow a debtor to take on a new debt, including a payday loan, while in bankruptcy.
I Took a Payday Loan in Bankruptcy, and I am Unable to Repay It
No one knows what tomorrow holds is a cliché statement until you experience a complete change in your plan. Even though a Chapter 13 bankruptcy case helps you get rid of debt over a long period, there are times when the debtors experience financial hardship. During these challenging times, some debtors opt to take out a payday loan with a solid repayment plan. Unfortunately, we cannot predict everything that will happen, and sometimes, you might be unable to repay the loan. What next?
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 the loan. A bankruptcy attorney is better positioned to advise you on what to do next after they analyze your case.
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 your debts discharged in four to six 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.
So, there are different options available to you. 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.
Are Payday Loans Discharged in Bankruptcy?
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.
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We devote our time to helping those in debt understand their options and eliminate debt. We have come up with tools and resources that you can access for free to guide you on how to go about your debt issues.
Use our free bankruptcy and debt relief calculators to understand how to get out of debt. If you are sure you want to go ahead with a debt payoff plan, use our free Savvy debt payoff planner to organize and pay your debts. Have a question about debt relief or bankruptcy? Contact us at (408) 471-9125, contact us online, and get a free case evaluation.