What Are Your Options for Discharging Payday Loans in Bankruptcy?
It’s not easy to deal with debt. Expenses can pile up, and the amount you owe creditors can increase swiftly. If you are facing unmanageable debt, filing for bankruptcy can be a useful tool to regain financial stability. However, not every debt is able to be discharged through bankruptcy, so it’s important to understand your options for discharging certain debts, such as payday loans.
Payday loans are common short-term debts that typically have high fees and can result in significant financial burdens if left unpaid. The Law Office of Marc G. Alster is experienced in helping clients understand the impact of payday loans and their options to discharge them through bankruptcy filings.
Located in Hackensack, New Jersey, the firm serves clients throughout New Jersey and the southern part of New York State. Reach out today to schedule a consultation and explore how you can discharge payday loans through bankruptcy.
What Are Payday Loans?
Payday loans are short-term, high-cost loans that involve relatively small amounts. These types of loans can take the form of cash, checks, or direct deposits into a bank account and are called “payday” loans because they are typically granted quickly and are due for repayment on your next paycheck.
While the exact terms and types of payday loans can vary depending on whether they were obtained online or through a storefront lender, these loans generally share the following characteristics, according to the Consumer Financial Protection Bureau:
Small amounts: Payday loans typically involve small amounts, usually around a maximum of $500 (though they can sometimes range higher).
No credit check: Payday lenders often do not require a credit check to determine your ability to repay the loan.
Short loan terms: Payday loans are often paid in one lump sum, e.g., sometimes being repaid in full on your next paycheck, but repayment can be longer such as two to four weeks or more, depending on your employment and the terms of the loan.
Automatic repayment authorization: Payday loans typically include authorization for the lender to automatically charge your account or cash a check to repay the loan and/or, if you are unable to repay the loan before the due date, the lender will likely continue to be able to pursue repayment against your account(s).
These loans almost come with notoriously high-costs and interest rates, with fees ranging anywhere from $10 to $30 for every $100 you borrow. This can quickly lead to considerable repayment fees. For example, if you add the actual interest and fees charged for many of these payday loans, the terms of these loans would violate the criminal usury laws in both the States of New Jersey and New York.
Taking out payday loans without adequately gauging your financial circumstances could lead to larger financial obligations that you may have difficulty repaying. If you are dealing with debt, including debt due to payday loans, filing for bankruptcy can often provide relief. An experienced bankruptcy attorney can review your financial situation and help determine whether bankruptcy is right for you.
Can Payday Loans Be Discharged Through Bankruptcy?
In short, yes. Payday loans can often be discharged through bankruptcy as they are typically classified as unsecured debt (similar to credit card or medical debt). While payday loans can be discharged through Chapter 7 or Chapter 13 bankruptcy, when they are discharged will depend on which type of bankruptcy you file for.
Chapter 7 bankruptcy: Also known as “liquidation bankruptcy,” Chapter 7 bankruptcy involves the Chapter 7 Trustee appointed by the Bankruptcy Court potentially selling off a debtor's-non-exempt assets (those that cannot be protected by applying the Bankruptcy Code's Exemptions) in order to pay back creditors. See the article in our website entitled "Bankruptcy Exemptions" under the Bankruptcy Overview heading in our website's navigation bar located at the top of every page. Payday loans are typically discharged after the bankruptcy process is complete, which in a typical Chapter 7 case, usually takes 3 to 4 months.
Chapter 13 bankruptcy: Also known as “reorganization bankruptcy,”. Chapter 13 bankruptcies are almost always filed by individuals who cannot protect all of their assets in a Chapter 7 proceeding or are required to file Chapter 13 bankruptcy based on their having disposable monthly income available to make Chapter 13 Plan payments. See the articles in our website entitled "An Overview of the Ch 13 Process"" and "Ch 13 - Substantive and Procedural Issues" under the" Bankruptcy Specific heading in our website's navigation bar located at the top of every page. Under Chapter 13, you will propose a repayment plan for repaying your debts over a three to five-year period. See the hyperlinks and references to the other Chapter 13 articles in this paragraph. Payday loans, like all loans, must be included in your Chapter 13 Plan; at the conclusion of your Chapter 13 case all unsecured debt balance not paid through your Chapter 13 Plan, such as payday loans, are typically discharged.
While payday loans can typically be discharged in bankruptcy, loans taken out within 70-90 days of filing may not be dischargeable, as they are presumed fraudulent and can be challenged by payday lenders.
Is Chapter 7 or Chapter 13 Better for Discharging Payday Loans?
As indicated above, unsecured payday loans can be discharged through both successful Chapter 7 and Chapter 13 bankruptcy cases. The type of bankruptcy you choose will depends on your finances and exempt and nonexempt assets. See the article in our website entitled "Bankruptcy Exemptions" under the Bankruptcy Overview heading in our website's navigation bar located at the top of every page.
To be eligible to file for Chapter 7, in addition to assuring that all of your assets can be protected (or least those assets you want to keep can be protected), you must also pass The Bankruptcy Code's Means Test, and are all so limited to a maximum amount of $100 monthly disposable income. This Means Test will compare your income over the last six months with the average household income in your state. If your income is lower than your state’s average income (after the application many generous exceptions), you will typically be eligible to file for Chapter 7 bankruptcy. See the article in our website entitled "The Bankruptcy Means Test" under the Bankruptcy Overview heading in our website's navigation bar located at the top of every page.
The vast majority of individuals who need to file for Bankruptcy protection in New Jersey do satisfy the Means Test as to most people in New York State as well. An experienced bankruptcy attorney can review your financial situation and help you determine the best course of action.
Contact an Experienced Bankruptcy Attorney Serving New Jersey and New York
Overwhelming debt can be challenging to deal with, especially when part of that debt stems from high-cost, short-term payday loans. If you are facing considerable unsecured debt, bankruptcy can serve as an effective tool to help you find relief and regain financial stability.
The Law Office of Marc G. Alster offers experienced bankruptcy representation and is committed to helping you explore the available debt relief options for your circumstances. Mr. Alster himself has over 30 years' experience helping individuals get a fresh financial lease on life (The Bankruptcy Code's "Fresh Start"), including rebuilding their credit scores on file with the 3 national credit reporting agencies. Located in Hackensack, New Jersey, the firm serves clients throughout New Jersey and southern New York State. Reach out today to schedule a consultation.