Student Loans and Bankruptcy

Payday Loans: Can They Be Discharged With Bankruptcy?

1 March 2016

Roy Sanders

For those with financial difficulties, a payday loan can be a life-saver when an emergency arises and cash is short. Unfortunately, those who need those payday loans are often also headed for a bankruptcy filing. Whether it's due to unexpected medical bills or poor money management skills, the need to file for bankruptcy after getting involved in a payday loan can add a layer of uncertainly to your decision to file. Read on to learn more about how bankruptcy deals with payday loans.

Debt That May Be Discharged

Most all debt that does not have collateral is classified as unsecured debt, and is therefore able to be discharged with bankruptcy. Collateral is what secures a loan and allows the creditor to take back property if the loan is not paid as agreed. For example, home mortgages are secure debt because the home can become the property of the lender if the loan is defaulted upon. Cars may be repossessed if the owner fails to pay, so it is also considered a secure debt. On the other hand, credit card debt and personal loans seldom have any security at stake, and may be wiped out with a chapter 7 bankruptcy filing. Payday loans have no security attached, and may be discharged with bankruptcy.

The Creditor's Meeting

Even though payday loans may be discharged with a bankruptcy filing, you may encounter a legal representative from the payday loan agency at your creditor's meeting. This meeting gives creditors the opportunity to object to their inclusion in a bankruptcy petition, especially for debts taken within 70 days of the bankruptcy filing. If you can prove that your payday loan was obtained for a good enough reason, the loan will likely be discharged. Examples of good reasons are: car repair, washing machine replacement, medical bills, food, clothing, housing expenses, etc.

The Disclaimer

You very likely signed a stack of forms and agreements when taking out your payday loan, and probably among those papers was a disclaimer that you would continue to pay the payday loan even if you filed for bankruptcy. These boiler plate documents are meant to intimidate the borrower into leaving that payday loan debt off the bankruptcy petition, and therefore continuing to be obligated to pay it after bankruptcy. Be sure that your bankruptcy attorney knows about the payday loan, but make no mistake that payday loans are unsecured debt and may be discharged in bankruptcy, regardless of what forms you signed.

Don't allow a predatory lender, such as payday loan stores, to keep you from making a complete fresh start after your chapter 7 bankruptcy. Contact a bankruptcy attorney today to find out more about how much of your debt can be forgiven with a chapter 7 filing. Contact a business, such as Demers Gagnier Inc., for more information.   

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