Payday Loans in Bankruptcy
Payday loans, or paycheck advances, are high interest rate loans designed to help the borrower receive some quick cash to help any financial burdens until they receive their next paycheck. Since these payday loans have such a high interest rate, they become very devastating to borrowers. If borrowers are relying heavily on these loans, their financial situation will often times become much worse before it gets any better. The debtor will then normally look for relief and wonder if these loans can be discharged in a bankruptcy. Normally, these payday loans will be treated as unsecured debt and will be discharged like most unsecured debts would be discharged in a Chapter 7 bankruptcy.
A Chapter 7 bankruptcy allows debtors to discharge unsecured debts without having to pay any of that debt back to creditors. As long as the payday loan has not been secured by some sort of collateral, the loan can be listed as unsecured debt in the bankruptcy petition and discharged through the bankruptcy. If the borrower does not meet the requirements to file a Chapter 7 bankruptcy, and instead files a Chapter 13 bankruptcy, some or all of the unsecured debt may have to be paid back over a period of 36-60 months.
It is also important to note that the contracts that come with these payday loans often have a provision stating that the loans cannot be discharged in a bankruptcy. This is false. Language such as this is used to try to scare borrowers into believing that they cannot include these debts in their bankruptcy. Again, if the payday loan is unsecured debt, it can be discharged.
It also important to note that if you give the lender a post-dated check at the time of signing the contract, the payday loan company can, and will, cash that check even after filing of your bankruptcy even though they will likely be required to pay that money back to you. It is normally a good idea to close the bank account attached to the written check before filing your bankruptcy so that this does not happen to you. Even though we can often get the money back, it sometimes takes time and you will still be responsible for any overdraft fees your bank charges as a result of the cashed check.
In closing, payday loans can be helpful in the short term, but in the long-term can be detrimental to your financial situation. If you have become overwhelmed with debt, have questions about this article or anything else related to bankruptcy, it is my recommendation that you consult a St. Louis Area Bankruptcy Attorney today. We offer free consultations at a number of locations.