You want to file for bankruptcy to discharge your debt, but if you have payday loans, you may wonder what will happen to them.
A payday loan is a short-term loan typically for $500 or less. They help cover small expenses until a person’s next paycheck. While easy to get, these loans come with high interest rates (as much as 400%).
It can be hard to pay off these loans quickly, and some people have several loans at a time, so things can get complicated quickly. So, is filing for bankruptcy a good way to get rid of these pesky loans?
For the most part, yes. Payday loans fall into the same debt classification as credit card balances and can be discharged in Chapter 7 or Chapter 13 bankruptcy. You do have to list all payday loans in your bankruptcy petition in order for them to be eliminated in your bankruptcy.
Chapter 7 eliminates most, if not all, of your payday loan debt. Chapter 13 treats these loans as unsecured, allowing them to be included in your repayment plan. Filing triggers an automatic stay, halting payments and lawsuits.
However, before resorting to bankruptcy, it is important to explore other debt relief options, since your assets will be affected in a bankruptcy. Other options to consider include consolidating your payday loans and negotiating directly with your lenders for better repayment terms. Seeking debt counseling or guidance from a trusted bankruptcy attorney can also be helpful. Many attorneys offer a free consultation to explore your options.
The Risk of Fraud
However, one thing you need to consider when including a payday loan in your bankruptcy petition is the risk of fraud. Timing matters, so if you took out the loan just before filing, you could be accused of fraud.
There is the presumed fraud rule to consider. The payday lender can use this rule if you take out a payday loan or other cash advance within 70 days of filing bankruptcy, and it amounts to at least $1,250 from a single creditor. Transactions that meet this criterion are presumed fraudulent. The payday lender does not have to prove you intended to commit fraud. It is assumed, and will stick unless you can provide evidence to prove otherwise.
If you are charged with payday fraud, you will remain responsible for repaying the loan. You may want to consider settling the debt for less than the amount owed. Most lenders will be receptive because they can avoid the costs associated with litigation.
Bankruptcy Can Offer Relief
Payday loans can quickly spiral out of control, but bankruptcy offers a structured path to relief. Including payday loans in bankruptcy can reduce or eliminate debt and provide a fresh start toward financial stability.
Understanding your options ensures the process is handled correctly and maximizes the benefits. An experienced and qualified bankruptcy attorney like The Law Offices of Adam M. Freiman can help you explore all legal options to get a fresh start.
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