I’VE seen a rise in the number of cases with payday loans and they are becoming a common issue in bankruptcy filings. What happens to payday loans in bankruptcy?

Payday loans are unsecured loans with outrageous interest rates (sometimes more than 1000% APR!!!).  If you can’t pay them off quickly, they can be a huge debt burden and the monthly payments are just as outrageous.  To get them, you give the lender post-dated checks which the lender will deposit if you don’t pay as promised.  In some cases, the payment is taken out of your bank account automatically.

These loans are designed to help the borrower meet his financial obligations until the next payday. As if living paycheck to paycheck isn’t already difficult as it is, a lot of desperate borrowers resort to payday loans thinking that it may help them avoid bankruptcy if they don’t have enough money to pay their bills. 

If you are already struggling financially and you are relying on payday loans as a source of instant cash, I have bad news for you: Your situation is most likely going to turn even worse pretty quickly. You are exactly the type of customer that these payday loan companies want. They know you are desperate and they are going to take advantage of you to fill their pockets. The monthly payment you’ll be making will barely cover interest and there’s a good chance you will end up filing bankruptcy like most people do.

If you do end up filing bankruptcy, cash advances taken within 70 to 90 days before filing may be disputed by the creditor and they can sue you in bankruptcy court to have the debt declared non-dischargeable. They can try to argue that you were already broke when you borrowed the money, knew that you weren’t going to be able to pay but borrowed the money from them, anyway. In other words, they can argue that you borrowed the money fraudulently because you never had the intention of repaying.

The good news is that even though I have filed more than 5,000 bankruptcy cases for my clients, I actually have not seen this happen although theoretically and legally speaking, it could happen. The reason for this, I think, is that bankruptcy courts are not likely to look at payday loan companies favorably because of their abusive and predatory practices.

If you gave the payday loan company a postdated check in exchange for your last advance, the payday loan company may still try to cash that check.  This is a violation of bankruptcy law and the court can order the creditor to give the money back to you if they were able to take funds out of your bank account after you’ve already filed bankruptcy.

Most payday loan companies don’t even pay that much attention to your credit history when you’re applying for a loan. As long as you have a good employment history, you can be approved immediately. This easy access to credit by desperate borrowers is what makes these loans very tempting. But trust me, they are often a trap.  Before you know it, you’ve buried yourself in an even bigger financial hole and you will not be able to get out.

Payday loans can be discharged in bankruptcy just like credit cards and other unsecured debts. The payday loan companies are often aggressive and have no problem using misleading advertising to trick you into borrowing. I’ve seen them get very aggressive in calling people non-stop once you stop paying. They will often call you at work and sometimes even people that you may have used as a reference. But payday loans are just like most ordinary debts. They can be included in bankruptcy like all other debts.

Most people who take out payday loans also have credit cards and other debts. The reason they have resorted to payday loans is because they’ve already maxed out their credit cards so now they have found a new source of instant cash. In some cases, people who cannot be approved for credit cards because of poor credit will qualify for payday loans so they take as many of these loans as they can instead of applying for credit cards.

If you or someone you know is in financial trouble (payday loans included), I provide a free consultation to discuss all possible options. Please call Toll-Free 1-866-477-7772 to schedule a free consultation. We have offices in Glendale, Cerritos and Valencia.

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None of the information herein is intended to give legal advice for any specific situation.  Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call  Ray Bulaon Law Offices at  TOLL FREE 1 (866) 477-7772. 

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