Can A Person File Bankruptcy for Payday Loans?

Bankruptcy is often the last resort for individuals and businesses facing overwhelming debt. It helps them manage and repay their debt through liquidation of assets, reorganization or an affordable payment plan. You can file bankruptcy for payday loans or any other kind of unsecured debt. The rules governing bankruptcy that apply to your particular case depend on the type of bankruptcy filed. Bankruptcy is regulated by federal law and must be filed in federal court. There are 94 federal judicial districts in the United States, and each one has one or more bankruptcy courts.

Types of Personal Bankruptcy

There are different kinds of personal bankruptcy depending on the particular circumstances involved and the law governing the process. Chapter 13 for example, is often referred to as the wage earner's plan. It is designed to help individuals pay off their debt within three to five years. During this time, creditors are required to put collection efforts on hold. Chapter 7 on the other hand, involves the liquidation of a person's assets that were not exempt from the bankruptcy in order to pay off creditors. Chapter 11 bankruptcy involves an adjustment of debts, by reducing the debt or extending the time for repayment, or some other kind of reorganization.

Payday Loans and Bankruptcy

Payday loans are some of the worst kind of loans out there, some of them with interest rates as high as 300 percent. While for some it is the only emergency source of cash, once a person is sucked into getting a payday loan it could become an endless cycle of running out of cash and never being able to pay off the payday loan. Some debtors have resorted to bankruptcy in order to escape the overwhelming debt of payday loans. You can file bankruptcy for payday loans and other unsecured debt, but whether or not you never get to pay off the payday loans depends on the type of bankruptcy and what kind of exemption and discharge deal you get from the court.

Bankruptcy Discharge

Bankruptcy discharge absolves the debtor of liability for some debt and he is therefore not required to repay any debt that was discharged. Creditors also are forbidden from taking any action to recover such debt. Depending on the kind of bankruptcy filed, the debtor receives release from certain kinds of debt. The discharge often comes as a court order included in the bankruptcy proceedings. The debtor, debtor's attorney as well as creditors receive notice of what debts are discharged. In most cases, debt is discharged unless there is litigation or if the debt is nondischargeable under law. In Chapter 7 bankruptcy for example, debts incurred as a result of willful and malicious damage to property, debts resulting from property settlements in divorce and separation cases and debts incurred in the process of paying nondischargeable tax obligations cannot be discharged. In the case of a payday loan, if it is discharged as part of the bankruptcy proceedings, the debtor will not be required to pay it.

Exemptions

In some instances, creditors can ask the court that certain debts be exempt from discharge. In addition, even though some debts are discharged in bankruptcy, an existing lien placed on the debtor's property that has not been made unenforceable by the court will still stand. Therefore if a payday loan creditor through its attorney asks that your payday loan debt be exempt from discharge and the judge agrees, you will have to repay the loan.

Expert Insight

Bankruptcy is a complicated process. Even though people often file on their own, it is more advisable to seek the services of an attorney who will pay attention to the nuances of your particular case and advocate on your behalf when necessary. You also will get advice on the best type of bankruptcy to file in your particular situation. The service should cost a few thousand dollars. If you cannot afford an attorney, contact your local Legal Aid office or your local bar for help.

References

• All about Bankruptcy

Resources

• Search for bankruptcy Lawyers
• State Legal Aide Offices