Does bankruptcy forgive payday loans?

There are many problems associated with payday loans, and often, they outweigh the positives, such as no credit check. For example, the finance charges can be hefty, even if the loan is only for a few weeks.

Plus, the loans can be difficult to pay back when they are due, leading consumers to bounce checks, rack up fees and take out even more loans. The good news is that if you are considering bankruptcy, your payday loans are likely to be discharged in Chapter 7.

Unsecured creditors

In Chapter 7 bankruptcies, your unsecured loans, such as credit cards and payday loans, should be dismissed. Medical bills and dentist bills should also be good to go.

One possible wrinkle may occur if you take out a payday loan (or cash advance) within, say, three months before you file. Lenders could claim that you took out the loan knowing you would not have to pay it back. That said, bankruptcy courts typically frown upon the payday lending industry, and many payday lender challenges in bankruptcy cases tend not to prevail. Moreover, if you can show a pattern of taking out loan after loan to pay previous payday loans, it is unlikely the court will find that you had fraudulent intent.

Chapter 13 bankruptcy

If you end up filing for Chapter 13 bankruptcy, you may have to pay back a small portion of what you owe a payday lender. It really will probably be only a small portion, as the debt is unsecured. That said, the overall aim of Chapter 13 is for you to repay some of your debts, usually over three to five years. This form of bankruptcy even lets many people stay in their homes and keep their cars as long as they reaffirm their mortgages and car loans.

Debt can come quickly and keep piling up. Talk to an attorney about bankruptcy before your financial picture is in shambles. The person you talk to can advise you on whether it is a safe time to take out a payday loan.

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