Jacksonville Bankruptcy Lawyer Blog
Many people ask me whether or not “Pay day” loans can be included in a bankruptcy. Unfortunately, the classic legal answer is, “It depends.”
A “Pay day” loan is one where an institution offers a loan equal to a portion of your next pay check. Typically, you have to provide evidence of what that paycheck will be by showing prior check stubs. When you get paid, you are then obligated to pay the loan company back. Many of these companies will take post-dated checks or will schedule an automatic debit on your account.
When the “Pay day” loan was taken out is the most important factor in determining whether the debt can be discharged in a bankruptcy. For instance, if a “Pay day” loan were taken out just weeks before the bankruptcy, there is a presumption that the loan was taken out with the intent to defraud the creditor. In these cases, it’s up to the person filing to prove that they were not trying to be fraudulent. It is best not to get into these situations and to make a good faith attempt to repay the loan prior to filing.
If an attempt to discharge the loan is found to be fraudulent, the typical repercussion is that the loan gets the status of being non-dischargable in any bankruptcy case. In simpler terms, it means that the person filing the case will still have to pay all of that loan or any part of it considered to have been taken out fraudulently, which can occur if subsequent loans are taken before the prior loan is paid.
There are also scenarios where the “Pay day” loans are illegal themselves. The state of Florida has guidelines that regulate how much interest can be charged over a one year period. Many of these loan companies will offer a two month loan at a 20% interest rate, however they calculate that percentage over the two month period. Once the loan amount is amortized over the one year period, these loan interest rates are often in the 200+% range.
Some of the educated elite feel that these loans actually cause bankruptcy in many cases. As referenced in a prior article, a paper out of Vanderbilt University has tried to argue this. The paper is available here.
In short, the majority of so called, “Pay day” loans are discharged in bankruptcy but you need to be careful when it comes to timing and your intentions.