Bankruptcy and Payday Loans

It may seem that payday loans are a problem when filing for bankruptcy, but they are usually easily discharged. One problem you may have is in trying to stop payment on the check that backs up the payday loan. Sometimes it is easier to just open a different bank account.

Payday loan companies try to say that you can not discharge a payday loan in bankruptcy. This is not true. You can not waive your right to discharge a debt in bankruptcy. If the payday loan company can prove that you took out a payday loan without any intention to pay it back, with full knowledge that you were going to file bankruptcy, then they can win a fraud case against you. Fraud cases in bankruptcy tend to be expensive and payday loan companies rarely, if ever, file fraud cases. The amount of the payday loan in question usually is not worth the trouble. Judges and trustee know that payday loan companies charge a lot of interest and that is how they cover the risk of people filing bankruptcy.

Payday loans are classified as “general non-priority unsecured debt.” That makes them the lowest priority of debt in bankruptcy. In most Chapter 7 cases, they receive no money. It’s only when property is taken in Chapter 7 that they receive any money. In Chapter 13 filings, they are last in line to get paid.

It does not matter if you are current on a payday loan installment agreement, if you have defaulted a long time ago or if you are being sued or garnished for a payday loan. As long as you have not committed fraud, you should have no problems discharging a payday loan in bankruptcy.