Can I discharge debt from a payday loan in bankruptcy?

Whenever you borrow money from a payday lender, you should be aware of the laws governing the practice. According to the Illinois Payday Loan Reform Act, no more than $15.50 per $100 loaned can be charged, and the loan must be for at least 13 days or longer. There are additional measures that protect the consumer from receiving a loan and going into debt.

If you are in debt and plan on filing either Chapter 7 or Chapter 13 bankruptcy, you should be able to address the payday loan. For a Chapter 7 filing, the debt will be treated as an unsecured creditor and it should be discharged. In a Chapter 13, the payday lender will be considered a creditor and you will likely only have to pay a portion of the amount owed.

However, it is important to note that the lender has a right to challenge the discharge of a debt in a Chapter 7 filing. This is especially true if you happen to take out a loan between 70 and 90 days prior to filing for bankruptcy. Under those circumstances, the lender may try to state that you never had any intention of paying the loan.  While these challenges are often met with little success, experts still advise that you wait more than three months from the time you took out the loan to file for bankruptcy to avoid any potential dispute.

Additionally, a lender may accuse you of writing a post-dated or bad check, especially if the institution tries to deposit the check after you have filed bankruptcy. If the lender knows you are in bankruptcy, however, it will have violated the automatic stay and will likely have to return the funds to your bank.

The U.S. Consumer Financial Protection Bureau reports that it will take action for behaviors such as unlawful collection practices and charging undisclosed fees when it comes to payday loans. If you feel you have been treated improperly, you should contact the CFPB.

While this information maybe useful, it should not be taken as legal advice.

No Comments

Leave a comment
Comment Information

Need Help With A Specific Issue?