Filing Bankruptcy on Payday Loans

Filing Bankruptcy On Payday Loans

Introduction

For people living pay check to pay check, Payday loans can provide ready cash flow for a person who needs the money to pay off an unexpected debt, such as for a car repair.

On the other hand, payday loans can easily become unmanageable, and usually the Payday customer rarely limits himself or herself to just one Payday loan.

What Is A Payday Loan?

A payday loan is a short-term loan made by a payday loan lender. “Short-term” means the loan will usually be due in full by the next payday. The amounts involved are usually relatively small, less than $1,000.00, for a typical payday loan. California law regarding payday loans will be discussed later.

These loans then are primarily for someone who needs a cash advance fast, such as for a car repair or medical expense. The lender does not check your credit but obviously wants to know that you are employed and have a bank account.

The payday lender will insist that you leave a post-dated check for the balance or authorize a bank debit for the balance which will automatically occur on the loan’s due date, which is your pay day.

Payday Loan Lender Fees

The payday loan lender will charge a fee or finance charge on this payday loan. As an example, you are short on cash and need a $300 dollar loan. The lender may charge you as much as $45.00 dollars for the loan which may be due in only two weeks. Note that in the above example the $45.00 dollar fee is equivalent to annual fee of $1,080.00 dollars (if charged every two weeks).

But most payday loan borrowers will not be thinking about this calculation. Usually, they need the money for an emergency, there being no emergency savings fund. In this way, payday loans are, therefore, seen as a form of emergency savings.

California Regulations For Payday Loans

California law has many restrictions for payday loans. In California, a payday loan cannot exceed $300.00 dollars. A payday lender can only charge a maximum fee of 15% of the amount of the loan, not to exceed $45.

Under California law, a payday lender cannot allow you to grind, take out a new loan to pay off your current loan. This is true even if the existing loan and the new loan would not exceed $300.00 dollars. A payday lender may only charge you one bounced check fee of up to $15.00 dollars. A payday lender may not threaten to prosecute you in criminal court for a bounced check for insufficient funds.

Unlike others who would tell you to get a “side gig” employment , or to sell you household goods, I would offer that you may be better off with a trained credit counselor who will help you manage your money and get you out of debt. You may contact www.nfcc.org/ to find a credit counselor in your area.

In the San Francisco area, we recommend Consumer Credit Counseling Service of San Francisco, www.cccssf.org/.  Note that we do not recommend any other credit counselors in the Bay Area.  These credit counselors may help you develop a payment plan for your creditors. They may also recommend ways for a better credit score. 

Finally, you may consider a bankruptcy for your Payday Loans. Payday loans may be discharged in either Chapter 7 or Chapter 13.

Filing For Bankruptcy And Payday Loans

Payday Loan Debt

Yes, you can file personal bankruptcy on payday loans. Payday loans may be discharged in bankruptcy as any other unsecured debt, such as a credit card.  A “discharge” is a court order from the Bankruptcy Court which says that you no longer have any liability to the creditor. You are, therefore, off the hook for the payday loan. 

You may obtain a discharge in either Chapter 7 or Chapter 13. Furthermore, under bankruptcy law, these lenders must cease all collection calls and attempts to collect the debt once the bankruptcy is filed. This provides initial bankruptcy relief and protection for the debtor, who is the payday loan customer. 

After the bankruptcy filing, one problem is the maintenance of the electronic debits on debtor’s bank account. In bankruptcy, you will need to immediately revoke authorization you have given to allow the payday lender to maintain electronic debits on the bank account. You will then receive a bankruptcy discharge of the payday loans either in Chapter 7 or Chapter 13.   While bankruptcy wipes out the payday loan, you must be careful. 

You should retain or at least consult with a qualified and experienced Bankruptcy lawyer regarding your Payday loans. Keith F. Carr is an experienced Bankruptcy Attorney. 

Chapter 13 Bankruptcy Filing

If you do not qualify for Chapter 7, you may file Chapter 13 to make a repayment plan over a period of 3 to 5 years. As part of the Bankruptcy process, 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.

About Author

Keith F. Carr is an attorney practicing Divorce, Estate Planning, and Bankruptcy. Attorney Keith F. Carr has over 30 years experience. Founder of Law Offices of Keith F. Carr, located in San Francisco, San Jose, and Palo Alto, Ca.

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