Will my payday loans be wiped out in my bankruptcy?

I've taken out several payday loans that I can't pay back and now I owe them a lot of money as well as owe a lot of other money. Will those payday loans go away if I file bankruptcy?

Payday loans are short-term loans with a very high interest rate. If you can't pay them off as planned, they can become a large debt burden. To get those loans, you give the lender a post-dated check which they will deposit if you don't make the payments. In the case of online payday lenders, you agree to let them take their money from your bank account if you don't keep up with the payments.

You may not owe enough on payday loans to make it worthwhile to file bankruptcy, but if you also have debts from credit cards and other things, possibly bankruptcy would be valuable for you. Your entire financial situation would need to be reviwed by an experienced bankruptcy attorney, but for now let's say that you've decided to file bankruptcy and are wondering about your payday loans.

Many pages have been written on this subject which you can find on the internet, but here's the short version.

1. In general, your payday loans would be treated just as any other unsecured debts (like credit cards) and would be discharged (eliminated) in your bankruptcy.

2. The post-dated check you gave them (or the agreement to take the funds from your bank account) should be dealt with before you file bankruptcy by closing that bank account. But first open a new one so you know you have some place to put the money from that old account. If you don't do this, the payday lender will simply cash the check and take the money. You might be able to get that money back by suing the lender as a part of your bankruptcy case (called an adversary proceeding) but that might cost more than the amount of money taken by the lender. It's much better to just avoid the problem.

3. If you took out a payday loan close to filing bankruptcy, the lender could claim that you knew at the time that you weren't able to pay it back. The lender may not bother to claim that, but I'd prefer that you wait three months after the last payday loan to file bankruptcy.

4. You will NOT go to jail for causing the post-dated check to bounce. The lender knew at the time it took your check that you didn't have money in the account to cover it, so it wouldn't become a "bad check" in the criminal sense regardless of what the payday lender may tell you.

Of course the best advice is to never take these very expensive payday loans. It's too late for that to help now, but think about it in the future.

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6 Comments

CarolJanuary 29th, 2014 at 1:10 pm

I am filing bankruptcy and I toke out payday Loans 2008 and 2007 I never received any information I paid 2 other loans I actually did not remember the loans from 2008 and 2007. They are calling me harassing me saying they are going to file charges and sending sheriffs to my job and constantly calling. I did explain I am filing bankruptcy but they did not want to hear that or take the information down. What do I do about this?

Malcolm RuthvenJanuary 29th, 2014 at 1:29 pm

Carol, you say you are "filing bankruptcy". Have you retained an experienced bankruptcy attorney? If not, you should do that immediately. Filing bankruptcy with creditors threatening you is not a DIY project. That said, payday loan companies are known for making threats that they cannot fulfill. But telling them that you're going to file bankruptcy doesn't accomplish anything. You either file bankruptcy or you don't. You ask "What do I do about this?" You retain an experienced bankruptcy attorney in your area and see if filing bankruptcy would be possible and a good thing for you, and if so go ahead and do that

CarolJanuary 29th, 2014 at 1:46 pm

Yes I have retained and Attorney.

Malcolm RuthvenJanuary 29th, 2014 at 2:03 pm

Then you need to discuss this matter with your bankruptcy attorney.

All the best to you, Carol.

ToneyFebruary 27th, 2014 at 1:21 pm

on these payday loans, what if filing bankruptcy, the money is set up to automatically come from your checking account, then how do you stop this. Does the attorney take care of this

Malcolm RuthvenFebruary 27th, 2014 at 1:51 pm

Toney, read #2 in the article above. It explains that you need to close that bank account and open a new one somewhere else before you file bankruptcy.

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