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Understanding chapter 7 bankruptcy and payday loans

If you rely on payday loans to cover some debts and unexpected expenses, it can cause you to keep borrowing and going deeper into debt. Soon, instead of living from paycheck-to-paycheck, you are living several paychecks in the hole. 

Sure, payday loans might seem like the ideal solution. But their convenience comes at a steep price for some. If you have outstanding payday loan debts and are not sure of your options, here are a few reasons to consider Chapter 7 bankruptcy.

A solution for the trap of short-term loan debt

Payday loans are unsecured debts, meaning lenders do not require borrowers to provide collateral to secure the loan. Chapter 7 bankruptcy discharges unsecured debts.

Payday loans have high interest rates and short repayment windows. If you do not pay back the full amount on time, the interest and penalties can soon double what you originally owed. In desperation, some people take out several payday loans to try to catch up and cover their obligations. And they get trapped in the cycle of debt.

Payday lenders do not take no for answer

While unsecured loans are eligible for Chapter 7 debt relief, payday loan lenders tend to be very persistent and unwilling to let borrowers off the hook with bankruptcy. There are many ways they attempt to collect payment, including unethical measures.

One tactic they may use is to file a dispute to your bankruptcy petition. If they can convince the courts that you had false repayment intentions, the amount they claim you owe becomes ineligible for discharge. 

Misunderstanding the rules can hurt your bankruptcy case

A common difficulty with bankruptcy petitions is violating one of the eligibility rules. For example, many continue to take out payday loans or apply for bankruptcy during the exclusion period (90 days before filing date). 

While some people may have a legitimate need to keep taking cash advance loans or apply sooner than the 90 days after their bankruptcy petition’s filing date, the consequences can lead to delays, adverse actions and even dismissal of your bankruptcy case. 

Bankruptcy laws are confusing, even if you have a good understanding of your finances. Legal guidance can make the circumstances easier to understand and resolve.

We are debt relief agency. We help people file for relief under the U.S. Bankruptcy Code.

 

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