Can You File Bankruptcy on Payday Loans in Arizona?
When you have difficulties dealing with day to day expenses, you can easily fall in the trap of payday loans. While they may seem like a life-saving option at the time being, payday loans can destroy your financial health in the long run.
A bankruptcy filing is often considered the best way to get rid of debt. Can a bankruptcy, however, be used to discharge payday loans?
How Payday Loans Are Treated in a Bankruptcy
Payday loans are typically classified as unsecured debt. This means that they’ll be treated like all other kinds of unsecured debt in the event of a bankruptcy filing.
In a Chapter 7 bankruptcy, unsecured debt is dischargeable. This means you can get rid of a payday loan without repayment. For the purpose, the loan will have to be listed in the bankruptcy petition and identified as unsecured debt.
To get a Chapter 7 bankruptcy discharge, however, you will need to pass the Arizona means test. If your income is higher than the mean wage for the state, you will not qualify for a Chapter 7 bankruptcy filing. A Chapter 13 debt restructuring bankruptcy will be a viable option in such circumstances.
In the event of a Chapter 13 bankruptcy, you will have to pay back some of the debt you’ve accumulated. A payday loan could potentially be included in the repayment plan. The plan will be valid for a period of three to five years, after which the remaining portion of the debt will be discharged.
Click here for information on the difference between secured and unsecured debt.
Objections to the Discharge
A creditor could object to your bankruptcy discharge in certain situations. This right is extended to the financial institutions that provide payday loans.
Taking a payday loan shortly before doing the bankruptcy filing could lead to an objection. The creditor may argue that you took the loan with the intention of never paying it back. The Arizona bankruptcy court will have to examine the case to determine whether the objection is valid.
If the court agrees with the creditor, you’ll be incapable of wiping out the debt through the bankruptcy filing and you’ll have to pay the sum back.
Thus, if you are experiencing financial difficulties and you are considering a bankruptcy filing in the near future, talk to a lawyer. A good Arizona bankruptcy attorney will guide you through the best ways to deal with your financial difficulties without jeopardizing the potential success of the filing.
It is a good idea to wait at least 90 days after taking a loan to file bankruptcy. The creditor will be responsible for proving fraudulent activity on your behalf and the longer the period, the more difficult will it be to prove fraudulent intent.
A final challenge that may stem from taking a payday loan is the use of post-dated checks.
Debtor are often required to provide a post-dated check to a creditor that includes the principal amount and the payday loan interest. Even after a bankruptcy filing and an automatic stay becoming effective, the creditor may try to cash out the post-dated check immediately.
The automatic stay prevents creditors from carrying out collection efforts once they have been notified of the bankruptcy filing. In a recent federal appellate case, however, the panel decided that post-dated checks could be cashed.
As a general rule of thumb, it is a good idea to avoid payday loans. Still, financial pressure and anxiety could get you making such a decision. Even if you accumulate payday loan debt, you can get it discharged in a bankruptcy. Meet a bankruptcy attorney for a first consultation and you’ll get a better idea about the manners in which payday loan debt can be addressed.