Yes, in most cases your payday loans can be eliminated through a Chapter 7 bankruptcy.
In some cases, payday loans can also be discharged through a Chapter 13 bankurptcy filing.
If you have payday loan debt, or if you're considering using payday loans to get through tight spots, bankruptcy may be an option for you.
Ask a lawyer if you can erase debt through a bankruptcy:
When finances are tight, it's easy to fall into one of the many traps set by unscrupulous lenders. Often, it's these short-term "solutions" that push consumers to the breaking point and force bankruptcy filings after months of juggling. Ultimately, most people who find themselves in situations that require these sorts of "quick-fix" credit options are precisely the ones who can least afford them-and who are most likely to be seriously harmed by them.
Whether you're rebuilding your life after a bankruptcy or searching for options that might allow you to avoid a bankruptcy filing, some options may be more harmful than others.
One of the most risky "credit options" available today is the payday advance loan offered by many storefront companies across the United States. These companies offer consumers the opportunity to write a personal check for cash a week or two in advance of payday. The company cashes the check and agrees to hold it until the consumer's next payday, but at enormous cost. Typically, these companies charge anywhere between $10 and $30 per $100 borrowed per pay period.
The terms of these loans can be so damaging to the consumers who use them that some states have outlawed payday loans and the federal government prohibits making payday loans to members of the armed services.
Here's how a payday loan works in theory:
In the above scenario, the borrower has paid $75 for the use of $300 for a period of somewhere between a week and two weeks.
Of course, many borrowers who take out payday loans fully expect it to be a one-time transaction, or at least something they have to do on rare occasion. However, because people who are forced to take out these high-interest, short-term loans are typically strapped for cash and living from paycheck to paycheck, the process often may work more like this:
This cycle can be financially destructive, but for a borrower who is trying to rebuild credit after bankruptcy, this cycle can be catastrophic. The loan fees cut into savings and/or the ability to pay down any remaining debts.
The need to make one large payment to the payday loan sto re may delay payment of other bills at a time when it's absolutely critical that all accounts be kept up to date. And finally, use of these short-term loans to bridge between paydays may mask financial issues that should be recognized and attacked head on the moment they appear, before finances begin to spiral out of control.
Concern over payday loans and their impact on consumers is widespread among lawmakers and experts. The FDIC is investigating the payday loan industry, and the Federal Trade Commission (FTC) includes a Consumer Alert about payday loans on its website.
Lawmakers in some states have banned payday loans altogether, while others seek to limit interest rates, fees, and the number of times loans can be rolled over. California has discovered and taken action against several payday loan operations illegally doing business in the state.
At the same time, though, online payday loan options are springing up, most often operating out of one of the ten or so states that impose no limitation on interest rates.
In those states, annual interest rates often approach 1000%. That means that a borrower who ended up keeping the loan open for a full year, were that possible in the state in question, would pay $1000 in interest on a $100 loan.
Our original borrower who paid $25/$100 for a $300 loan would end the year having paid back $2250 on that original $300. For a borrower whose finances are already tight-and that's true of nearly every payday loan store borrower-that additional outlay can be fatal to financial stability.
Credit counselors suggest that even taking cash advances on credit cards-a strategy they virtually universally discourage-is preferable to entering into the payday loan cycle, and generally yields significantly lower interest payments, even when the highest-rate cards are used.
The FTC recommends investigating these options instead of a payday loan:
The FTC also warns that, if you should decide that you have no option except to take a payday loan, you should never borrow more than you are certain you'll be able to pay on your next payday without leaving yourself short for the following weeks.
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