Payday Loans And Bankruptcy: Can They Be Discharged?

Posted on: 2 February 2016

For those undergoing financial troubles, desperation may drive you to seek some fast cash from a payday loan store to make ends meet. Unfortunately, those same financial troubles could have you seeking further relief in bankruptcy court, where you hope to have all or most of your debt burden forgiven, or discharged, through a federal chapter 7 filing. Most unsecured debt can be discharged, but you may have questions about your payday loan in particular, which often comes with crippling interest rates and fees. Read on for more information about payday loans and how they may be discharged with a chapter 7 bankruptcy filing.

Unsecured Debt

In lending, the word unsecured means that there is no assets at risk if the debt is not paid as agreed. For example, a home mortgage loan will normally be secured by the property itself. For credit cards and personal loans, however, no property is at stake. In bankruptcy, the presence of secured loans often results in surrender, where the bankruptcy court "takes" the property to help pay your creditors. A payday loan is unsecured, since there is no property at stake (unlike a title loan), so it should be included and discharged with your chapter 7 filing.

Payday Loan Disclaimers

Often, payday loan recipients are required to sign a statement where you agree that you will repay the loan even if you declare bankruptcy. Don't be misled and allow this disclaimer document to prevent you from including this debt in your bankruptcy filing. If you leave it off your list of debts, you will still be responsible for paying this ruinous obligation in full.

Frivolous Spending

Debts added in the 70 days prior to your chapter 7 filing may come under scrutiny with the bankruptcy court, especially if the lenders appears at your creditor's meeting to protest the discharge of that debt due to fraud. In this instance, fraud refers to running up your debt obligations for frivolous purchases, such as vacations or luxury items. As long as you can show that the payday loan, or any charges made using unsecured debt during the 70 days prior to filing, was not frivolous, it will likely be approved for discharge. So, whether you needed to repair your car, buy food for your family or pay bills to keep you in your home, your payday loan will be a discharged debt.

Ensure that your bankruptcy attorney, such as William C Fithian III, is aware of any payday loans before you file so that you can truly make a fresh financial start.