Are you experiencing financial trouble and considering taking out a payday loan to get you through the tough times? If so, you've got to be very careful about where, how, and when you get that loan. While payday loans are considered unsecured debt and are dischargeable under chapter 7 bankruptcy, there are some situations in which this doesn't hold true. Read on to learn 3 things you absolutely shouldn't do, just in case you have to file for bankruptcy after taking out a payday loan.
1. Don't Borrow Right Before You File
If your financial situation is especially grim, don't even think about taking out that payday loan. If you do take out a payday loan and are forced to file for bankruptcy in the near future, the bankruptcy court could view the loan as fraudulent activity. Since your budget is tight right now and payday loans have exceptionally high interest rates, the lender could argue that you had no intention of repaying the loan. If the court agrees with the lender, you could face steep fines and up to 5 years in jail.
If you truly are running out of money with no way to pay your bills, it's best if you just file for chapter 7 bankruptcy now instead of trying to buy yourself some time with a payday loan.
2. Don't Borrow From Tribal Lenders
Tribal nations are protected under sovereign immunity; they're considered independent nations and therefore are allowed to operate under their own set of tribal laws. If you secure a payday loan from a tribal lender and your state's bankruptcy court declares that loan dischargeable under chapter 7 bankruptcy, that doesn't necessarily mean that it will be discharged under tribal law. You won't be required to pay the loan back under state bankruptcy law, but there is a chance that your lender will still attempt to collect their debt. While you'd normally be able to stop aggressive collection practices under the Fair Debt Collection Practices Act, this won't work against tribal lenders since they can't be sued unless they waive their sovereign immunity.
If you shop for a payday loan online, pay close attention to the contact information of the lender. If the information shows that the lender is located on tribal territory, do not accept the loan.
3. Don't Post-date Checks
Many payday loan lenders require borrowers to submit post-dated checks upon securing their loan. When you file for chapter 7 bankruptcy, an automatic stay takes effect immediately. This stay prohibits all debt collectors from attempting to recover their money from you while you sort out your financial situation. However, since automatic stays do not apply to negotiable instruments, any post-dated checks that you have provided to a payday lender may still be cashed after your automatic stay takes effect.
To avoid making your difficult financial situation even worse in the event you should need to file for bankruptcy, never post-date checks for payday loan lenders. Instead, only agree to loans in which you can hand-deliver or mail payments to your debtor at the time they are due. This will ensure that, should you file bankruptcy before your payday loan is paid off and the loan is discharged, the debtor will not be able to pursue any further collections.
In most cases, payday loans are dischargeable under chapter 7 bankruptcy, but not in all cases. If you're experiencing financial troubles and considering taking out a payday loan to buy yourself a little time, heed the above advice. For more information on payday loans as they relate to chapter 7 bankruptcy, contact a bankruptcy lawyer in your area or check out a site like http://timgeorgelaw.com.