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A common question we are asked is, “Can I file bankruptcy with cash advances?”
Short Answer:
Yes, but timing matters.
Cash advances taken within 70 days of filing may not be discharged and could be challenged under Bankruptcy Code §523(a)(2)(C)(i)(II). If you’re already in a bankruptcy case, taking a cash advance without approval could put your case at risk.
A cash advance or pay advance is a short-term loan. It is typically expensive and designed to be repaid quickly, often within two to four weeks or by your next paycheck.
Cash advances are often referred to as payday loans, since they function as an advance on your upcoming income.
You give the lender a check dated for your next payday or authorize them to withdraw money directly from your bank account. On that date, the lender deposits the check or withdraws the funds.
Of course, this comes at a cost.
Cash advance lenders charge extremely high interest rates. In some cases, the annual percentage rate (APR) can reach 400 percent. For comparison, most credit cards charge less than 28% APR.
If you cannot repay the loan on time, the lender may “roll over” the loan. This gives you more time, but adds additional fees and interest.
For many people, this creates a cycle. Instead of paying off the original loan, they continue paying fees every few weeks just to extend it.
Quick Reality Check: Cash advances are one of the most expensive forms of borrowing, and interest usually starts immediately. There is no grace period.
Many states have laws limiting these practices, but high costs still remain common.
Before deciding what to do about a cash advance, it helps to understand whether bankruptcy is even an option, and what it would cost.
We built a Chapter 7 bankruptcy cost and qualification calculator below to help you estimate how much it would cost to file bankruptcy and whether you may qualify.
Most debts can be discharged (erased) in bankruptcy. However, certain debts, including recent cash advances, are treated differently under Bankruptcy Code §523(a)(2)(C)(i)(II).
Cash advances may still be discharged, but only under specific conditions.
In many cases, if the cash advance is less than $1,100 and taken outside the 70-day window, it may still qualify for discharge.
However, if you took out a cash advance of more than $1,100 within 70 days before filing, you may need to wait at least 70 days before filing bankruptcy to avoid issues.
If you file too soon, the debt may be considered non-dischargeable. That means you could still owe it even after bankruptcy.
→ Timing Matters
Taking a cash advance too close to filing is one of the most common mistakes people make, and it can directly impact whether that debt is wiped out.
IMPORTANT NOTE: The cash advances and bankruptcy rule includes payday advance loans and cash advances on your credit cards.
You can discharge cash advances in bankruptcy if:
The best step is to wait 70 days after the last cash advance to file for bankruptcy relief. However, if you cannot wait, talk with a bankruptcy lawyer. There could be several options that the bankruptcy attorney could offer for handling the problem so that you can file bankruptcy and get rid of the debt.
No, not without approval.
You are prohibited from incurring new debt without bankruptcy court approval during your bankruptcy case. If you take out a cash advance without permission, your case could be dismissed.
In most situations, courts are unlikely to approve a payday loan during bankruptcy.
If your financial situation has changed, it may be better to explore other options.
You can talk with your bankruptcy lawyer about your situation. In some cases, if your income has decreased, you may qualify to convert your case from a Chapter 13 case to a Chapter 7 case and eliminate your unsecured debts.
If you’ve already taken out a payday loan while in bankruptcy, act quickly.
Contact your attorney immediately and explain the situation. Your attorney will review your options and determine next steps.
In some cases:
However, if you refile too soon, the debt may still not be dischargeable. Courts can view recent debt as fraudulent if it appears you had no intention to repay it.
If you’re considering a cash advance — or already took one — the most important question is:
What actually happens next?
Will your debt be wiped out?
Will your payment increase?
Could your case be at risk?
Instead of guessing, you can use the calculator below to see how your situation may play out across different options.
Before applying for a cash advance or a payday loan, consider these alternatives to cash advances:
Some credit cards offer a zero percent APR rate for purchases and other essential items. However, you owe the credit card company and must pay the balance off within the introductory interest period, or you will be charged interest on the debt. Also, you must be careful not to charge more than you can pay off, or you could create a future debt problem.
Check with your friends and family about a short-term loan. You might be able to work it out to pay them a set amount every payday to repay the loan. In addition, your loved ones may not ask you to pay interest on the short-term loan.
Inquire about a personal loan from your bank. Credit unions are generally a great place to apply for a personal loan. The interest rate should be much lower than a payday advance. In addition, you could set up automatic payments from your paycheck each pay period to ensure you pay back the loan to avoid creating a future debt problem.
If you need money to buy groceries, pay a utility bill, or other essential needs, look into local organizations that offer assistance to individuals facing hardships. Check with local churches, charitable organizations, community centers, and government agencies.
You might be able to take a loan against your 401(k) or retirement loan. In addition, some accounts allow for hardship withdrawals. However, talk with a bankruptcy lawyer before borrowing against or withdrawing your retirement funds. Most retirement accounts are protected in bankruptcy. Therefore, you might be eligible to file for bankruptcy to get rid of debts while protecting your retirement funds.
Collateral loans might be another option or a short-term loan. However, you would need to give the lender a lien on your property (i.e., household goods, vehicle, home, etc.). If you do not repay the loan, the lender can repossess the property. Before going this route, talk with Ascend about your other options. There could be a better option for dealing with a debt problem that protects your property, gets rid of your debts, and gives you the fresh start you need.
Filing Chapter 7 bankruptcy helps many people get out of debt quickly. Chapter 13 bankruptcy cases provide affordable repayment plans that protect people from their creditors. However, there are other ways to get out of debt.
Ascend helps you explore your bankruptcy options and your non-bankruptcy alternatives for debt relief. Our free bankruptcy and debt relief calculators help you compare your options for getting out of debt.
Call or text us at (833) 272-3631 or contact us online for a free case evaluation. Our compassionate, friendly, and knowledgeable team members work with you to determine the best way for you to get out of debt
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