Payday Loan Bankruptcy: Discharging Cash Advance Debt

Following changes to the 2005 code, payday loan bankruptcy won't necessarily discharge you from the money you owe to payday and other specialist cash loan lenders. Fast cash loans are regularly seen as a source of easy cash, but this flawed perspective changes when you need to find a way to repay the principal, interest and charges that have accrued. If you don't have enough money in the bank, chances are that you plan to consolidate payday loans or enter a debt solution to quickly and efficiently eliminate your cash advance debt. Filing for bankruptcy enables you to become debt-free in as little as 4 months.

Can I File for Chapter 7 Bankruptcy Under the New Code?

The Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005 to prevent what was considered to be widespread abuse of the system. However, this doesn't appear to have reduced the number of people who have decided to file for payday loan bankruptcy. In the 12-months ending 31 December 2010, a total of 1,100,116 individuals have filed chapter 7. While this shows that most people who need to file are still able to do so, it's also a sign that economic conditions are worsening.

Although the new laws are quite involved, most people are unaffected by the change. Provided that your income is below the median for your state, you'll be able to file for payday loan bankruptcy under chapter 7. Certain non-exempt assets, such as a second home, cannot be included in the agreement. If this is the case, you may wish to consider chapter 13. There are other circumstances where you may be able to proceed, but it's advisable to consult an attorney first.

Bankruptcy and Payday Loans

The majority of unsecured debts can still be discharged, but the criteria for eligibility have changed. CCH Incorporated have interpreted the new bankruptcy law as meaning that: "Advances in excess of $750 made within 70 days of filing (per line of credit) are presumed to be non-dischargeable." In essence, you mustn't have borrowed money in anticipation of going bankrupt. The court will look at whether you genuinely intended to pay back the cash that you've borrowed.

These rules may also affect you if you've renewed your agreement within 70 days of filing. However, most judges realize that cash advance debt accrues a usury rate of interest and will look at the date when the money was borrowed. If you've paid off the interest and renewed the agreement on several consecutive occasions, payday loan bankruptcy should still be an option for you.

Sources

"Business and Non-business Cases, by Chapter of the Bankruptcy Code." US Bankruptcy Courts.

"Bankruptcy overhaul enacted - new rules for bankruptcy implemented." CCH Incorporated.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 22 March 2011