Payday Loans and Bankruptcy


Payday loans (also called cash advances, payday advances, check advance loan, etc. .) can be listed as a debt in a chapter 7 or chapter 13 bankruptcy. Generally speaking they are treated like any other unsecured debt.

Payday loans and lenders are regulated by state law. In Michigan they are regulated under the Deferred Presentment Service Transactions Act. This law requires those who give out payday loans to be licensed by the state of Michigan. The law also sets how much time you may have to pay back a loan and what types of service fees can be charged among other things. For more information on Payday Loans and how Michigan regulates such loans check out the Michigan Consumer Alert- Payday Loan.
In short, a payday loan is where you, the customer, write a post-dated check to the lender for the amount of the loan plus any applicable service fees. In turn the lender gives you cash in the agreed amount. If you do not pay the loan back within the prescribed time, the lender may then cash your post dated check. Often people are concerned that payday loans are the equivalent to writing a “bad check” because they may not have the money in the bank at the time they write the post-dated check. However, not having money in the bank is the precise reason you are probably seeking a payday loan. You are not representing to the lender that you have the money in the bank the day your write the check but that you will have the money after your next paycheck or benefit check.

When you meet with your attorney for consultation regarding bankruptcy be sure to mention if you have any payday loans. They can be listed in your bankruptcy and most likely discharged. Remember that if you have any pending post-dated checks that are currently in the hands of a payday lender they might try to cash those checks. Once you file a bankruptcy it is against the law for the lender to cash the check or make any attempt to collect the loan from you. You also may want to stop payment or close the bank account on which the check is drawn in order to avoid problems with the check being deposited.

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