For many people who are considering bankruptcy, one of the last resorts they turn to before this step is a payday loan company. These short-term loans are considered unsecured debt, because they aren’t tied to a physical asset that can be repossessed. Therefore, it would seem like these debts should be discharged in a standard NYC bankruptcy. There is one sticky area that turns these debts into a complication for many debtors, however.
How Long Ago You Took the Loan Matters
When you file for bankruptcy, you have to show that you have not recently taken out any loans or made any big purchases with the intent of having those debts wiped away in the bankruptcy. That kind of activity is considered fraud, and is a quick way to have your entire case dismissed. But once again – most people who consider bankruptcy went to payday loans as a last resort. Once they realize that they can’t pay back everything and the new loan, bankruptcy seems to be the only way to keep them from losing everything.
With that being said, there are ways to get around this. If you have had multiple payday loans in the past – especially if you’ve fallen into a pattern of getting many payday loans to pay off previous payday loans – then you can show the court that this wasn’t fraudulent activity. It was simply part of your typical expense pattern.
Payday Loan Structure Matters
Payday loans are often structured to renew every month if they aren’t paid back in full. This means that even if you took out a payday loan a year ago, it still shows as a “new” loan every month because of the renewal structure. Payday loan companies have successfully argued in other bankruptcy cases that a renewed loan is a new loan, and had the judge dismiss the debtor’s case for discharge.
An experienced bankruptcy attorney can help you argue this structure and convince a judge to allow the debt to be included in a bankruptcy case.
The Ideal Situation
If you have payday loans, and you want to file bankruptcy, the ideal situation would be a loan that was taken out more than 90 days ago, that does not automatically renew or hasn’t yet been renewed.
Alternatively, payday loans can be bundled into Chapter 13 bankruptcies without contest, because the company will be getting paid back. This can be a good way to at least get rid of any interest the loan has accrued.
What If They Cash Your Check?
Most payday loan companies have a policy that requires you to submit a post-dated check for the principal when they receive their loan. If you have entered bankruptcy, meaning the automatic stay has been ordered, and the payday loan company then cashes your check – whether they were aware of the bankruptcy yet or not – they will be ordered to return the money. However, you will still be responsible for any bank fees or other financial hardships that may have occurred due to the check being cashed.
If you decide to file bankruptcy, and you know the payday loan company has your check on file, it is a good idea to place a “stop payment” with your bank, which will cost a small fee – but is much more affordable than the cashed check.
In order to protect your interests and avoid the aggressive tactics of payday loan companies, you need a good NYC bankruptcy lawyer. My office specializes in bankruptcy law, and can assist you with complex debts that aren’t easily discharged. Call us today at 212-244-2882 to schedule a consultation.