You may have one or more payday loans outstanding. In general, your bankruptcy will discharge payday loans. However, there are additional issues that you need to know about as you work towards your bankruptcy filing. This document discusses how to address payday loans and the post-dated charges that come with them.
This article is not legal advice to you specifically. This is a general description of the issue, to help you have a meaningful conversation with your attorney before you file. Only your attorney can properly advise you on your specific case. If anything in this handout differs from what your attorney tells you, follow your attorney's advice.
Payday loans are dischargeable. Payday loans are high-interest, high-risk loans. Like most other unsecured debts, the bankruptcy applies to them. You are protected by the automatic stay once you file. Further, the loans are discharged once you complete your case. However, as a collection tool, most payday loan agencies ask you to write post-dated checks, or schedule electronic charges, against your bank account. This is a separate issue that you must address.
The automatic stay does NOT apply to post-dated checks or automatic payments. You may have given the payday loan agency a post-dated check. You may also have given the agency permission to present an electronic deduction to your account (also called an "Automated Clearing House" or "ACH" payment) at some later date. The Bankruptcy Code allows the creditor to present those checks or payment orders to your bank, whether or not you are in bankruptcy. As a result, although the debt may be discharged, the payments you have already scheduled are not affected. You can still lose money.
Spak to your bank about any pending payday loan charges against your account. Once you advise your bankruptcy attorney about the pending charges, they will probably refer you to your bank to address the problem. Talk over the matter with a loan officer. Be up front about the bankruptcy you intend to file. Also make sure you have the details the bank needs to help you – the names of the lenders, the amount you borrowed, and the date any payments are due to hit your account.
The bank may recommend one or more of the following solutions:
Stop payment on the post-dated checks. If you have the check number, the bank may be able to block the check when it is presented. However, stop-payment orders do not work well against ACH payments.
Withdraw all money from the account, turn off any overdraft protection, and allow the checks to bounce. If the bank agrees to this solution, you will be able to shield your money from the loan charges. The bank will charge you a fee for the rejected check; however, this will be much less than what you would lose if the check was honored. Note also that the payday loan agency may present the same check or ACH payment multiple times. This could tie up your account for weeks, and may result in a payment slipping by after you place your money back into your account.
Close the account. This is the safest way to prevent payday loan charges from draining your account. It is also one of the most disruptive – you may have paychecks deposited, and may have bills paid, automatically out of the account. Your bank may be able to open a new account within the same branch, and route your automatic deposits and charges to this account. This will protect you as much as possible. Your bank may charge you fees for the dishonored checks and additional services. Better that you pay the bank a little bit of money, rather than lose hundreds of dollars to post-petition collection.
In general, if you have outstanding payday loans with post-dated payments scheduled, you need to talk to your attorney AND your bank. While we can discharge the debt, we cannot handle the post-dated payments – you need the bank to help you there. If you act quickly, and are up front with both your attorney and your bank, you stand a good chance of solving the problem without losing your money.
Payday loans are dischargeable in bankruptcy. However, the post-dated checks and ACH payments that come with them can still be presented against your account, even after you file.
While your bankruptcy attorney can eliminate the payday loan debt, your attorney cannot address any already scheduled post-dated checks or ACH payments.
Talk to your bank about how to solve post-dated payment problems. The bank may recommend you stop payment, zero the account balance, or close the account and open a new one.