Payday Loans and Bankruptcy

In these tough economic times, I am seeing more and more people coming into my office with multiple payday loans. In talking with my clients about the situation, I have realized that many of the people with recent payday loans, took them out after learning they were losing their jobs. I understand the thought process...I am gonna need money and I can't get a loan anywhere else but if I forget to tell them I lost my job I can get a payday loan or two. When the payday loan company then tries to cash the check it will bounce because I won't have any money and they can't do anything about it until I am working again.

Reality then starts to set in. The money is quickly spent covering living expenses and paying other bills and the concerns start to rise as bankruptcy is considered. So the question then comes up about whether the loans can be discharged in bankruptcy. I have been a bankruptcy attorney in the Indianapolis area for over six years and I can almost always discharge payday loans for my clients.

However, if the loans were obtained by providing false information to the lender, then the debts may not go away through the bankruptcy process. If the person taking out the loan knew he had lost his or her job (or provided other false information to the payday loan company) but still took out the loan while they had pay check stubs to "verify" employment the loan would survive the bankruptcy.

The reality is that the lender would have to file an adversary proceeding against the person to stop the debt from being discharged. The face amount of the check may not make it worth the lender's time and money to do this. However, as this economy takes its toll on the payday loan companies we may see them start pursing these types of situations more aggressively.

The bottom line is that you should avoid payday loans (the interest rates are just too high). However, if you have already taken them out and were honest in doing so, you should be able to walk away from them without any problems. The best policy is to be honest in your business dealings and you won't have to worry about these types of situations.