Payday Loan Grind

Bankruptcy can help
Many debtors find themselves in need of a quick-fix type of loan due to medical bills, car repairs, or whatever. Because they may have poor credit, they are enticed to take out payday loans. A payday loan is a short-term general loan dependent upon the debtor being employed. They usually have relatively high annual interest rates and are generally due within the next pay period of the debtor. Often the debtor for these loans must allow payment in the form of a direct debit from the debtor's bank account.

Unfortunately, when  the payday loan becomes due (on the debtor's next payday), the debtor cannot afford to pay the balance which, by now, has interest attached. The debtor then rolls that loan over into another loan with the lender or finds another payday loan lender and the grind begins. Debtors will then continue finance one payday loan with another until the his or her finances are a complete mess. Debtors are usually subject to frequent collection calls and other attempts to collect the debt.

Bankruptcy may help. Payday loans may be discharged in Chapter 7 as any other debt.  Under the law, these lenders must cease all collection calls and attempts to collect the debt once the bankruptcy is filed. One problem is the maintenance of the electronic debits on debtor's bank account. The Chapter 7 debtor will need to immediately revoke authorization for the lender to maintain electronic debits on the bank account. Debtor will then receive a Chapter 7 discharge of the payday loans. This means that Chapter 7 wipes out the debt!

If the debtor does not qualify for Chapter 7, he or she may file Chapter 13 to make a repayment plan over a period of 3 to 5 years. The Chapter 13 plan will provide for monthly payments to a Chapter 13 trustee who disburses funds every month to the creditors, including payday lenders. During the 3-5 year period, the payday lender may not attempt to collect its debt or initiate court proceedings. Once the debtor finishes the plan, the debtor obtains a Chapter 13 discharge of the payday loan.

Free Bankruptcy Consultation

If you have multiple payday loans and are considering bankruptcy, Attorney Keith F. Carr offers a free telephone consultation. He has 29 years of experience in bankruptcy law, representing individuals and small businesses throughout the Bay Area in Chapters 7, 11, and 13. 

Call Us:     (415) 935-3744