Payday loans are a very innovative concept which is running around the United States quite contagiously today. It provides instant cash by keeping your future paycheck as collateral. Payday loans are a common point of discussion during bankruptcy as they can make the procedure complicated. While most people take payday loans to clear their existing debts, which may be credit card bills, utility bill payments, personal expenses, etc., the amount is usually limited to about 70-80% of the average paycheck. Just like credit cards, the interest charged on a payday loan is very high. It is an unsecured form of loan and does not have any asset backing and hence, falling into a vicious interest cycle is quite common and obvious. Need more tips on managing finances, log on to Recovery Law Group for more info.
Concept of Payday loans
Unlike credit cards or other loan forms, payday loans are highly liquid and are directly deposited in the bank account or are in the form of cash advances. The approval process is also quick, but the processing charge and interest rate are on the higher side. Ideally, the payday loan should be used in a very difficult circumstance and if you are falling back on it several times, its high time you had worked on controlling your finances. Payday loans are generally given on the basis of employment income and history. Credit score and other parameters often play a minimalistic role in determining eligibility to payday loans. Hence, it is the most common loan form for employed individuals with low credit score to access cash instantly.
Your recent pay slips, employment tenure, etc., matter the most for payday loans. Though there are the state and federal agencies monitoring payday loan providers, it is up to the borrowers to not consider payday loans as a viable option. If it is a one-off situation that wasn’t anticipated then it could still be fine, however, if you need to look forward to a payday loan because your paycheck isn’t enough for meeting routine expenses, you might have just put your foot in the spider webbing.
Can bankruptcy help in cutting the spider webbing?
Since payday loans are considered as unsecured debt, bankruptcy can help significantly in managing or releasing the payday loan debts. Whether you file bankruptcy through Chapter 7 or Chapter 13, there are good chances of releasing the payday debts. However, if the payday loans were taken recently before filing bankruptcy, the lender might argue for your intention to not pay the loan and it might be converted a fraud transaction, which will not be released by the bankruptcy court.
The bankruptcy trustee tracks 70-90 days of transactions hence, it is important to not file bankruptcy after taking payday loans for that period. The usage of these loans also has to be for the necessary expenditure. If any luxury items were purchased or the money was transferred to friends, relatives, parents, etc., for clearing their debt, there can be further consequences of retrieving money from the ‘insiders’. Making big transactions or purchases could also bring you under the scanner of the bankruptcy trustee.
What is in your favor?
The bankruptcy courts by default do not support or tend to like the payday loan providers. Hence, there are several favorable clauses that could prove the lender’s claims incorrect. For instance, the court regards the first payday loan as the transaction start date ignoring the recent loan transactions. This certainly helps in addressing the 90-day period that is under the trustee’s scanner. The only option left with the payday loan providers is to convert the transaction into a fraud one, which is not an easy task for sure.
Payday lenders may also seek for security based on various different factors. It could be a post-dated cheque or a Demand Draft or any financial instrument with a promise of you paying them back in future. The payday lender might try to cash in the cheque even when you have declared bankruptcy and the ‘automatic stay’ has been applied. This is a violation, but litigation and court cases will consume a lot of time and money. The best way to handle this scenario would be by notifying your attorney, bankruptcy trustee and your bank about the post-dated cheque to the payday lender. The banks offer to a stop payment facility at a fee, which is derived based on the number of checks issued. You can consider paying the stop payment fee and preventing the payday lender from cashing a post-dated cheque.
Need help get help
Payday lenders often threaten for criminal cases as writing a bad check is one. However, the law is different during bankruptcy. By the illustrated above method, you can stop payment to your payday lender once you are in the ‘automatic stay’. Also, if the payday lender has cashed in the cheque just before you file bankruptcy, the same can also be retrieved for the bankruptcy estate under the Chapter 7 bankruptcy norms. Also, there are many fraudulent payday lenders around in the market who operate only by a website or an app. These websites charge a fee upfront for processing loans and just disappear. Such duping of customers has seen a typical rise in the recent 6-7 months.
As per law, no upfront fees can be charged before processing a payday loan. Hence, a fee or charge before loan processing is a serious trigger. If you are confused and need help, reach out to 888-297-6203 for immediate professional help!