Discharging Payday Loans in Bankruptcy

In these tough economic times, many Americans are desperate to make ends meet. Some are becoming trapped in a destructive cycle of payday loans. A payday loan is a short term, high interest loan that is secured by a post-dated check. The company loans the borrower a few hundred dollars that is repaid on the borrower’s next payday. What is meant to be a small, convenient, and short term loan to pay an immediate expense (an overdue electric bill, for instance), often results in multiple loans and an endless cycle of debt. Unfortunately, many payday loan borrowers are unable to free themselves from this cycle and are forced to seek bankruptcy protection.

Individuals often worry that the payday loan company may file a criminal “bad check” charge if the payday loan is included in the bankruptcy. The payday loan company wants you to believe this, and many have their customers sign a certification that the borrower is not contemplating bankruptcy.

While there are a few exceptions, generally being unable to pay a post-dated check is not a crime. When you wrote the check both you and the payday loan company knew there were not sufficient funds in your bank account to pay the check. Because there was no present intent to pay, the post-dated check is not a “bad check,” only a future promise to repay the loan.

Even after your bankruptcy is filed, a post-dated check may be presented for payment. In some cases (notably in the 6th and 8th Circuit Court of Appeals) courts have stated that the presentment of the post-dated check does not violate the automatic stay provisions of the bankruptcy code. However, some courts have said that the funds collected by the payday loan company is an “avoidable transfer” meaning the bankruptcy court could order the company to return the money.

If you have payday loans, consult with an experienced bankruptcy attorney. It is important to identify any outstanding payday loan before filing bankruptcy. Most payday loans are discharged without issue; however, payday loan companies are becoming increasingly more knowledgeable and aggressive towards debtors in bankruptcy. Discuss the matter with your attorney and protect your legal rights.

Are People In Need Avoiding Bankruptcy?

Although bankruptcy filings are climbing back to the all-time high of 2 million reached in 2005, there is a growing concern that many Americans in need of bankruptcy protection are not filing. A recent article in USA Today quotes Katherine Porter, associate professor of law at the University of Iowa who says, “[T]he filing rate doesn’t even begin to count the depth of financial pain.”

Are you hurting financially? Bankruptcy can help ease that pain.

Bankruptcy is a federal legal process for declaring an inability to pay your creditors. When you file bankruptcy you get immediate relief. The bankruptcy court imposes an “automatic stay” prohibiting creditors from taking collection action against you while the bankruptcy case is pending. The automatic stay is very powerful and stops lawsuits, wage garnishments, and even foreclosures. Its purpose is to give the debtor some breathing room and an opportunity to decide how to resolve an overwhelming debt problem.

There are typically two different types of bankruptcy cases: chapter 7 and chapter 13. In chapter 7 you eliminate debt without payment while chapter 13 is a repayment plan over three to five years. At the end of a bankruptcy case the court enters an order discharging eligible debts and permanently prohibits creditors from taking collection action against you.

In some cases certain debts are not discharged. The most common types are family support obligations, student loans, and taxes. However, bankruptcy offers significant relief by discharging other debts and freeing up money to pay the non-discharged debt. Chapter 13 can also be helpful by allowing payment of the non-dischargeable debt under the supervision of the bankruptcy court and without fear of lawsuits, wage garnishments, or other nasty creditor action.

The bankruptcy process is very efficient. For most chapter 7 debtors the case will last a few months and requires one meeting with the bankruptcy trustee. The cost of bankruptcy is very reasonable compared to the relief that is given.

If you are hurting financially, speak with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you. There are many options available in the law and can give you real relief from overwhelming debt.