Of the two main types of bankruptcy you can file, Chapter 7 is typically the preferred method, because it offers forgiveness of debt. Chapter 13, on the other hand, requires a plan to repay the debt you owe. If you are thinking of filing Chapter 7 and are wondering if your outstanding payday loans can be included, here are a few things you will want to know before you file.
Cash advances do not always receive forgiveness
With Chapter 7 bankruptcy, there are a lot of rules that dictate what debts can be included in the case and forgiven, and some of these rules are for cash advances. Typically, a cash advance that was taken within 70 days before filing for bankruptcy will be excluded from the discharge of debts. In other words, you will have to repay most cash advances if they took place within this time frame. If they are longer than 90 days old, you might be able to include them in your case and receive a discharge for them.
The other thing to realize is that the amount must be at least $950. If the amount of a cash advance was less than this, it may be forgiven even if it was taken out in the last 70 days.
Why these laws exist
The reason these laws exist for Chapter 7 bankruptcies is to prevent people from committing fraud. For example, if a person is considering filing for bankruptcy and rushes out to borrow money with the assumption it will be discharged in the case, the bankruptcy trustee can view this as fraud. The person was intentionally racking up debts, just prior to filing, with the intention that he or she would not repay the money.
How payday loans are treated
Payday loans fall into the category of cash advances; however, they are not always treated as cash advances in bankruptcy cases. The first thing to realize is that if the debt was less than $950, it probably can be discharged no matter when it was taken out.
The other thing to realize is that bankruptcy courts often look into payday loans to find out when they were actually initially taken out, and they will use that date instead of the dates in which the loans were renewed. Many consumers that take payday loans will renew them multiple times before repaying them. Courts often tend to be lenient with bankruptcy rules when it comes to payday loans, simply because payday loans are considered abusive.
Getting a fresh start is a great way to take control over your finances, and Chapter 7 bankruptcy offers this opportunity. If you would like to learn more about filing for bankruptcy, discuss your situation with an attorney in your city. For more information about bankruptcy and debt relief, contact a lawyer such as Clinger Richard S.