It can be challenging to make ends meet, especially when you are out of work because of an illness, injury, or unemployment.
Even with unemployment benefits or workers’ compensation benefits, paying your living expenses and debts might be impossible.
Everyone experiences a temporary financial crisis, even with a great job. For that reason, a payday loan might sound appealing. However, what happens when you are in a Chapter 13 bankruptcy case? Can you get a payday loan in Chapter 13 without messing up your bankruptcy case?
There is not a specific definition that covers all payday loans. However, the Consumer Financial Protection Bureau (CFPB) describes a payday loan as a high-cost, short-term loan. Common factors of a payday loan include:
An annual percentage rate for a payday loan could be as high as 300 to 400 percent. However, many states cap the amount a company may charge for a payday advance loan. Payday loan companies often take advantage of people who need money quickly and cannot qualify for a traditional credit card or loan.
Payday loans often carry very high interest rates. Will this payday loan put you at risk of Chapter 13 dismissal?
Or, is your Chapter 13 payment too high?
In 2019, we realized that there were few to no unbiased resources to help people understand their options to get out of debt cheaper, easier and faster and avoid wage garnishment. So, we built debt cost and options calculator that provides personalized estimates of your different options, the pros and cons and alternatives. It's been helping thousands of people, and has helped us receive a 5.0 rating on Google based on over 100 reviews. With the calculator, you can estimate your cost and options if you end up having to do a Chapter 13 dismissal.
Payday companies do not consider your ability to repay a debt when they give you a loan. All they require is that you show you have a source of income so you can repay the debt from your check paycheck or deposit. Therefore, if you do not tell the payday company you are in Chapter 13, you should be able to get a payday loan in Chapter 13.
However, debtors are prohibited from incurring new debt without bankruptcy approval. Therefore, if you need to take out a loan while in a Chapter 13 bankruptcy case, you must file a Motion to Incur Debt with the bankruptcy court. Obtaining new debts without court approval could result in a dismissal of your Chapter 13 case.
Your Chapter 13 trustee or creditors may object to the new debt. However, if you have a good reason for the debt and can show your ability to repay the debt without impacting your Chapter 13 repayment plan, the court might authorize you to incur debt in Chapter 13. It is unlikely that a court would grant permission for a payday loan in Chapter 13.
Unfortunately, life is unpredictable. Many Chapter 13 debtors experience rough times while they are in their Chapter 13 case. They have difficulty making their Chapter 13 plan payments while paying their living expenses. They need a little help for a few weeks, so they turn to a payday company. Now, they cannot repay the payday loan.
If this happens to you, call your Chapter 13 bankruptcy attorney immediately. Tell your lawyer about the payday loan in Chapter 13. Your lawyer reviews your options.
Your attorney might advise you to dismiss your Chapter 13 case, depending on your situation. If your financial situation has changed, you could qualify for a Chapter 7 bankruptcy case. If so, you might be able to discharge your unsecured debts in four to six months without paying any more money to the Chapter 13 trustee. Also, if you do not qualify for Chapter 7, you might refile Chapter 13 and include the payday loan.
However, if you refile for bankruptcy relief immediately, the new debt might not be dischargeable. Debts incurred within 70 to 90 days of filing a bankruptcy case are considered fraudulent and might not be dischargeable. The payday company can file an adversary proceeding to object to your discharge.
Therefore, you might need to wait several months before refiling a bankruptcy case. Your bankruptcy lawyer discusses all options to help you decide what you should do if you incurred a payday loan in Chapter 13.
Most payday loans can be discharged in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. Payday advance loans are considered unsecured loans. However, you should check with a bankruptcy lawyer if you obtained the payday loan within a few months of filing for bankruptcy relief.
Our goal at Ascend is to help people discover affordable ways to get rid of debt. We provide free tools and resources for you to use as you consider how to handle debt problems.
You can use our free bankruptcy and debt relief calculators to explore different ways to get out of debt. In addition, our Savvy debt payoff planner is a proven method for paying off debts without filing bankruptcy. Call or text us at (833) 272-3631 or contact us online for a free case evaluation.