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 reviewed 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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12 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.

Malcolm RuthvenMay 27th, 2014 at 4:07 pm

I'm not sure what you mean by "can I file him". Since you're asking a bankruptcy attorney, I assume your question has to do with bankruptcy, and the only person you can file bankruptcy for is yourself. That would eliminate your debts, including the payday loan, leaving your co-worker as the only one the loan company could go after to pay that loan.

Ronald ReffJuly 12th, 2014 at 7:33 am

I filed for bankruptcy on 02/19/13 and the bankruptcy was discharged on 3/22/13. The problem is I have been continually called by a payday loan provider called Ashland Enterprises-although it is hard to pin down a physical address and phone number. When I filed my attorney told me to give him absolutely everything I could find on Ashland Enterprises, addresses and phone numbers. The crazy thing was that it was listed under about 10 different names and phone numbers. The attorney told me that they do this to discourage people from suing them because it is such a hassle. Anyway the latest call was from a guy representing Q.C. Holdings but he wouldn't give me the specific name of the creditor I supposedly had a debt with. He said there was a bench warrant for my arrest which I knew was bogus. This payday loan with Ashland Enterprises was incurred in 2011 and was listed on the bankruptcy. I have them calling me saying they are a private investigator and that I am under criminal investigation, they have said I am under fraud investigation, that I have a summons, and also the bench warrant thing. I know these are all scare tactics but how do I get them to stop?

Malcolm RuthvenJuly 12th, 2014 at 8:04 am

Ronald, you said "I filed for bankruptcy on 02/19/13 and the bankruptcy was discharged on 3/22/13" which doesn't seem right because a Chapter 7 bankruptcy takes about three months to go from filing to discharge of debts. But I'll assume that you did get a discharge of debts in a Chapter 7 bankruptcy and the Ashland Enterprises debt was discharged. That said, as you're finding out, those people will resort to about anything to get you to send them money and they are difficult to find and difficult to sue and collect against (they certainly have done enough to allow you to sue them). As a practical matter there is really not much you can do to get them to stop. If you can block their calls, do that. If not and you can tell that it's them calling, don't answer. If they send you anything in the U.S. Mail, take it to your post office and file a complaint. Sometimes the postal service will follow up. I hope a lot of people read this just to warn them against taking out payday loans.

Ronald ReffJuly 12th, 2014 at 8:13 am

Thank you so much. I will follow your advice and will block their calls.

Sandra GallegosAugust 26th, 2014 at 10:03 am

I am in california and I recently had a collection agency for a loan taken out on the internet with multi loan source and this guy jim carter from texas threatened me saying there would be a warrant out for my arrest, so I back tracked to multi loan source who then gave me the # to the collection agency #1 and then they referred me to collection agency #2 which I spoke to a Peter THomas which I sure is the same guy threatening me with an arrest using the alias name Jim carter, can a person be prosecuted for a loan by phone and this guy also told me I would not be able to file on my Bankruptcy. Is this legal these scare tactics I am getting ready to file a claim with the ca attorney General and federal trade commission.

Peter Thomas told me to ignore any calls from Jim Carter and I was also told that had I agreed to send the money to settle the debt I would have been sending the money to someone that would not have sent the money tosettle the debt, it would not have been forgiven, and Peter Thomas at autobond holdings told me that my acct was no longer handled by that gentleman and before I could explain, he stopped me and new about this jim carter character and I asked that he help with this guy and he refused nonchalantly, end result peter thomas got me to agreeto two post dated payments to settle my $826 debt, with money I dont have, at that point I was concerned.

Malcolm RuthvenAugust 26th, 2014 at 11:29 am

Sandra, your experience with payday loan companies trying to collect debts is pretty typical. They're known to say all sorts of things that aren't true. Since your comment here is about my payday loan article, I assume you read it and know that your payday loans would be treated just as any other unsecured debts (like credit cards) and would be discharged (eliminated) in your bankruptcy and that you will not go to jail because of that debt. I strongly recommend that you consult with an experienced bankruptcy attorney in your area. If you're in the San Francisco Bay Area, feel free to get a consultation with me: http://ca-bankruptcylaw.com/free-consultation

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