Each year, countless people take out high interest, short term loans, known as payday loans. The state of Ohio caps the interest rate for these loans at 28%, but some unscrupulous lenders avoid the cap by charging additional fees that aren’t counted as interest. With high interest rates and potential additional fees, it is easy for people to get in over their heads with payday loans. Many of these consumers want to know if bankruptcy is a viable option for getting out from under the debt.
Bankruptcy and Payday loans
Payday loans are unsecured debt, which means consumers can eliminate them by filing chapter 7 bankruptcy or pay off a portion of them by filing chapter 13 bankruptcy. However, not all payday loan debt is dischargeable. The courts block debt under certain circumstances in order to avoid bankruptcy abuse and fraud.
In order to determine if a debt is nondischargeable, simply look at the amount owed to each lender, along with the length of time the loan has been active. Loans in excess of $925 that were taken out within 70 days of filing for bankruptcy are not dischargeable.
It is important to note that borrowers can take out more than $925 within 70 days of filing for bankruptcy, but it must be from more than one lender. For instance, if someone borrowed $500 from Lender A and $600 from Lender B in the last 70 days, he can discharge the debt because he does not owe more than $925 to a single lender.
If a consumer has nondischargeable debt, he has the option of disputing it by presenting evidence that he intended to pay it back. The best way to fight this is to show proof of something that caused the bankruptcy after the debt was taken out. For instance, the loss of a job after taking out the loan might make the debt dischargeable.
Objections for Bankruptcy
The creditor also has the option of filing an objection to dischargeable debt if the payday loan was taken out within 90 days of the bankruptcy filing. Unless the creditor can prove fraudulent intent, it is hard for payday lending companies to win objections. The courts do not have a favorable view of payday loan companies.
Bankruptcy provides a safety net for people who get in over their heads with payday loans. People can then start off fresh, free from the debt of the loans. Those who meet the criteria can begin the filing process immediately.