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Can Pay Day Loans be Wiped Out or Repaid in Bankruptcy?

Posted By Allmand Law Firm, PLLC || 23-Apr-2013

Pay Day Loans and Bankruptcy

Payday loans, also known as a cash advance, are short-term loans borrowers obtain against their next paycheck. While they seem convenient in helping you get necessary expenses covered between pay days, many find themselves trapped in trying to break the cycle of getting it paid without the need to take it out again. Due to high interest rates, you end up repaying more than just the original amount of the loan. If you have outstanding payday loans, they may be eligible for discharge or be included in a repayment plan if you are considering bankruptcy.

Payday loans are considered unsecured debt since collateral or an asset of value isn't required for the loan. In bankruptcy, they are treated in the same way as other unsecured debt such as medical bills and credit card debt. In this sense, they are discharged and the debtor is no longer obligated to repay it. This is likely the scenario for either bankruptcy chapter you file, as long as qualifications are met.

Chapter 7 bankruptcy wipes out or eliminates unsecured debt through a court-approved discharge. If you file this chapter the payday loan debt should be listed as an unsecured debt. Chapter 13 bankruptcy is a court-approved repayment plan based on your income. While you may be required to repay a portion of unsecured debt you include in your filing, the remaining that is unpaid will be discharged when the case is completed.

Borrowers should be aware of their rights when engaging with payday loan lenders. Some states have regulations in place that cap interest rates of the amount you borrow. If it is proven you had no intention of repaying the loan a discharge may not be granted. Discuss questions and concerns with your bankruptcy attorney in Dallas-Fort Worth.

Categories: Bankruptcy
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