How Can A Bankruptcy Attorney Help Me With Payday Loans?

If finances are tight and you need some cash in hand to take care of bills or necessities, a payday loan might seem like an easy answer. Reasoning that you are good for the money once your next payday comes around, a quick, small loan could be a tempting solution to an immediate problem.

But more often than not, fees and interest stack up fast. You may end up unable to repay what you’ve borrowed within the time frame you agreed to. If things snowball and you see no way out, filing for bankruptcy might seem like your only way forward. Let’s look into the details and learn whether an Ohio bankruptcy filing could help.

What Is A Payday Loan?

They’re known by various names – cash advances, paycheck advances, check advances, etc. – but regardless of what they’re called, the gist is the same. A payday lender allows you to borrow a small sum of money, asking in return for your contractual agreement and either a post-dated personal check or an automatic ACH withdrawal from a bank account. They’re looking to reclaim their funds on your next pay date. But beyond the sum you need, the lender also tacks on fees and an often exorbitant interest rate. And therein lies the problem.

Payday Loans’ Hidden Threats

By the time your payment is due to the lender, you might be back at square one, without enough cash. When the check is deposited or the withdrawal made, it could default. And without the payment received, the lender will then want you to renew or refinance your loan. That generally means that you pay the original fees and interest, but still owe the principal. More (and often higher) fees and interest are assessed and the loan is reinstated for another set due date. But if you couldn’t pay the first time, it’s likely that your situation will be the same this next go-around. 

Many people get caught up in a seemingly never ending borrow-refinance cycle. And because interest is assessed on a weekly, biweekly, or monthly basis, it can end up being much higher than a typical annual interest rate, adding to your overall debt. Should you remain unable to repay, the lender might pass along your debt to a collector. The situation could then become unbearable and financially detrimental. You might wonder if bankruptcy could help to alleviate your burden.

Does Bankruptcy Cover Payday Loans?

Put simply, yes, filing for bankruptcy in Ohio will generally allow you to discharge your payday loans. That’s because as personal loans they’re considered unsecured, meaning they don’t have collateral attached to them. Under a chapter 7 bankruptcy filing creditors are issued an automatic stay to prevent them from collecting, and unsecured loans are typically erased. If you file for a chapter 13 bankruptcy, the loan will generally be incorporated into a court-structured repayment plan. The repayment time frame will be longer than your current payday loan and oftentimes the fees and interest are reduced.

But there are two main issues that can arise. One has to do with the amount owed. A loan under $1,000 can always be included in your bankruptcy filing. If the loan is $1,000 or more, then timing becomes the point of contention. Federal bankruptcy guidelines state that payday loans over $1,000 that were renewed within 70 days before filing are not dischargeable in a chapter 7 bankruptcy filing.

This guideline exists because, as with any bankruptcy proceeding, the court will not consider large debts incurred shortly before filing as part of the case. That makes sense because it prevents someone from abusing the system and purposely racking up debts only to have them erased. The problem here is that you are the one being abused.

If you have been unable to repay the loan in full and are stuck in the refinancing cycle, you could be renewing the loan many months after your original request. It’s essentially the same loan, but because it’s renewed so regularly – as often as you receive a paycheck – the timing could conflict with the court’s 70-day guideline.

How a Bankruptcy Attorney Can Help

The average person might not know whether they have recourse to leave this vicious lending cycle behind. And lenders could make you feel that you won’t be able to have the debt discharged. Maybe you aren’t sure that filing for bankruptcy is the best option for you. This is where legal experts can help. If you are feeling pressured or threatened by payday lenders and collectors or need help to get out of the refinancing cycle, please reach out to us at Hausen Law, LLC and our Northeast Ohio Bankruptcy Attorneys can work with you.

Our experienced bankruptcy attorneys can devise a strategy to enable you to legally extend the delay between renewing the loan and filing for bankruptcy. Courts and attorneys know the underhanded nature of payday loans and lenders and generally find them to be abusive.  So a court will often look to the original date of your payday loan, not the most current renewal. This can then put you in line to begin the Ohio bankruptcy filing process. Payday trap averted, now you can get on the path to financial health. 

If you aren’t sure whether chapter 7 bankruptcy or chapter 13 bankruptcy would be best for your situation, please reach out. We are happy to discuss your options and help you to recover. Give us a call at our office or complete an online contact form to schedule a free consultation. We proudly serve the Akron, Canton, Wooster, and Dover/New Philadelphia communities and are here to help.