People considering bankruptcy have typically been fighting financial hardships for quite a while. Sometimes, those issues may have forced some desperate actions, like taking out a payday loan.
People running out of options are often forced to turn to a cash advance loan business for help, but how do high-interest payday loans affect a bankruptcy filing?
Payday Loans and Bankruptcy
Payday loans, also known as payday advances or cash advance loans, are usually short-term, high-interest loans that you’re expected to pay back on your next payday. You may have seen the many payday loans or check cashing businesses attracting customers with brightly lit neon signs around Los Angeles. Payday loans are also offered online.
Considering Payday Loans Before a Bankruptcy
As you approach a possible bankruptcy filing, it literally pays to be cautious with your spending. Bankruptcy courts have seen every method people will use to try to cheat the system.
Making a lot of purchases and purposely driving up debt just before filing bankruptcy is considered fraud. Offenders are looking to acquire a lot of assets they know they won’t have to pay for because of the hope of an upcoming bankruptcy discharge. Payday loans can certainly factor into whether your portfolio gets red-flagged or not.
Making questionable choices just before bankruptcy can hurt your chances of getting debt discharged and also land you in hot water with federal investigators. Having several recent payday loans on your bankruptcy petition can trigger a closer look into your filing and even earn a rejection.
What to Know About Payday Loans Before You File
There are several important details to understand regarding bankruptcy and payday loans. These factors can significantly influence your responsibilities when it comes to your bankruptcy filing:
Automatic Stays Won’t Stop Collection on Payday Loans
Automatic stays are granted after you file your bankruptcy with the court. The court notifies your creditors of your filing and prevents them from pestering you while the bankruptcy process plays out. Unfortunately, this notification won’t always stop loan companies from collecting what you owe them.
When you agree to a payday advance, lenders often require a post-dated check in the amount of your loan as collateral. They don’t cash this check unless you stop making payments and default on the loan. Payday lenders may stop calling you, but they can try to cash the check you provided them.
Stopping the Payday Loan Company from Cashing Collateral Check
There are ways to prevent this check (mentioned above) from being cashed. Your bankruptcy attorney can help you determine the best options for your situation. Closing out the bank account the check is linked to could provide a solution. You could also attempt a stop payment on the check by notifying your bank.
Timing Issues with Payday Loans
As we mentioned above, there are red flags that pop up if you take out a lot of payday loans just before filing for bankruptcy. You can find yourself in serious trouble after violating the “presumptive fraud rule.”
The rule applies to payday loans or other cash advances that occurred within 70 to 90 days of filing bankruptcy. Transactions completed in this period could be presumed fraudulent. The court and your bankruptcy trustee may ask for proof you didn’t intend to commit fraud.
Avoiding Automatic Renewals
As if payday loans weren’t hard enough to get free from, some cash advances renew each month. The loan conditions start all over again if you haven’t paid back the full amount of your loan. When loan providers want to prevent you from escaping your debts, they can accuse you of fraud by showing that your loan renewed within the last two months.
Your bankruptcy lawyer would defend you by showing the origination date of the first loan you took out and downplay the renewals that followed. In many cases, bankruptcy courts will accept this argument and prohibit the lender from interfering with your bankruptcy discharge.
Payday Loans on Bankruptcy Discharge Day
Because payday loans are considered “unsecured debt” and aren’t secured by collateral property, they qualify for discharge in bankruptcy. In a Chapter 7 filing, payday loan debt is eligible for discharge when a bankruptcy court wipes out the rest of your unsecured debt.
When filing for Chapter 13 Bankruptcy your payday loans are eligible to add to the debt repayment plan that Chapter 13 requires. You’d likely only have to pay back a portion of your loan debt over three to five years.
Can I Get a Payday Loan After a Chapter 7 Bankruptcy?
You can take out personal loans after going through bankruptcy. Even with the credit hit taken in a bankruptcy, most filers have access to loans shortly after a discharge. Finding a decent interest rate is the challenging part of the process.
With bad credit, a payday loan may seem like your only option. Just be sure to pause and reconsider your actions. If relying on high-risk cash advance lenders is what sent you into your first bankruptcy, another round of loans could land you in the same spot.
A second Chapter 7 bankruptcy filing probably won’t provide a life. People who have filed for Chapter 7 must wait eight years from their last filing date to try again.
Contact A Los Angeles Bankruptcy Lawyer Serving Southern California
People in a tough financial situation can turn to payday lenders to hold off bankruptcy. That choice can lead to unwanted scrutiny when someone is finally forced to file. So, is filing for bankruptcy a good move for you? The best choice you can make is to talk with an expert at the Law Offices of Steers & Associates in Los Angeles and serving all of Southern California.
Fill us in on your situation by taking advantage of a free and confidential bankruptcy consultation. Contact us today so that we can go over the right bankruptcy option for you and your unique circumstances.
Elena Steers, the founder of The Law Offices of Steers & Associates, has worked on both sides of the California bankruptcy process. She has a long, successful background practicing bankruptcy law and she puts her experience to work in your favor in the courtroom and at the negotiating table. Take a moment and read about her extensive resume.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.