Can You File Payday Advance on Chapter 7?

by Mary Jane Freeman Google
Payday loans are usually dischargeable in Chapter 7 bankruptcy.

Payday loans are usually dischargeable in Chapter 7 bankruptcy.

Comstock/Comstock/Getty Images

Filing for Chapter 7 bankruptcy protection provides many debtors financial freedom and a fresh start. Payday loans, also known as cash advances or paycheck advances, can be included in the bankruptcy estate. Once the bankruptcy discharge is granted, payday creditors can no longer pursue debtors for payment.

Chapter 7

Once a debtor files for Chapter 7, a bankruptcy trustee is assigned to the case. The debtor must give up all of his non-exempt assets to the trustee who then liquidates them, using the proceeds to pay the debtor's creditors. Whatever debt remains afterward is usually discharged and the debtor's liability for them is extinguished.

Discharge of Payday Loans

In general, payday loans are short-term, high-interest loans that provide instant cash. They are typically unsecured debts. As such, they may be included in a Chapter 7 bankruptcy, even if the loan contract contains language or a disclaimer stating that the loan is not dischargeable in bankruptcy. Such language is usually no more than a scare tactic on the part of the lender and not supported by law. However, if the debt was acquired within 60 to 90 days of bankruptcy filing, it may not be dischargeable. To protect against bankruptcy abuse, the U.S. Bankruptcy Code typically prohibits the discharge of recently acquired debt.