Are Payday Loans Dischargeable in a Chapter 7?

16164907_sPayday loans are generally dischargeable without any arguments in a Chapter 7 Bankruptcy, because these loans are unsecured debts. There are, however, a few special cases.

 

Fraud

 

If you borrowed money within 90 days prior to filing bankruptcy, there is a presumption of bankruptcy fraud. Simply stated, the law presumes that you never intended to repay the money and that you used your bankruptcy filing as a sword instead of a shield. In such a situation, the payday lender may file an objection to discharge and a motion to remove the stay.

 

Many bankruptcy judges do not like payday lenders, believing that these lenders charge usurious rates and take advantage of consumers. Whether that perception is true or false is not the point. Because of this attitude, some judges may require the payday lender to prove fraudulent intent. Intent is particularly hard to prove if the actual loan was originally taken out more than 90 days prior to filing, and the consumer had to keep renewing the loan.

 

Postdated check

 

Some payday lenders may require you to surrender a postdated check. After you file, they may attempt to cash the check, arguing that they deposited the instrument in the normal course of business.

 

But the automatic stay prohibits creditors from taking any action against you, and the payday lender is clearly a “creditor” at that point.

 

Vehicle title loan

 

Many people place title loans and payday loans in the same category. For non-bankruptcy purposes, this classification may be appropriate. But, by accepting cash and putting up your car title as security for repayment, the vehicle title loan is a secured debt. The debt itself may be dischargeable, but the lender’s lien on your car title is still valid.

 

One option is a cram-down. If you borrowed $3000 but your car is only worth $1000, you may be able to pay the $1000 and keep your car. Another option is a conversion to a Chapter 13 bankruptcy, when the automatic stay stays in effect much longer, giving you time to pay off the loan.

 

To find relief from your creditors, contact us for your free consultation.

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