Financial troubles can cause many people to seek relief at a payday loan store. Not everyone has access to willing friends or family when an emergency financial need pops up, and payday loans exist for exactly that reason: as an emergency cash source when you are desperate, such as getting your car repaired so that you can get to work. 

Unfortunately, sometimes your lack of cash and available credit are indicators of more severe financial issues, often bad enough for you to consider the debt relief of filing for bankruptcy.  If  you have already taken advantage of a payday loan, you may be wondering if you can discharge this debt with bankruptcy. Read on for important points to consider about how payday loans are treated in chapter 7 bankruptcy.

Unsecured Debt

Generally speaking, all unsecured debt is dischargeable in bankruptcy. Unsecured means that the lender has no recourse at recovering the money owed, unlike a car loan or a home loan, when foreclosure or repossession at least gives the lender a means to recover some of the debt owed. In bankruptcy, secured property with loans such as your home or car may have to be surrendered to help pay some of the debt you owe.

In contrast, credit card or personal loans are considered unsecured. Payday loans fall into the category of unsecured debt, so therefore may be dischargeable with chapter 7 bankruptcy. However, there may be some unique circumstances in regard to payday loans.

Payday Loan Disclaimer

You may have remembered reading a disclaimer when signing for your payday loan concerning bankruptcy. Often payday lenders will require the customer to sign such a disclaimer indicating your understanding that this type of loan is not dischargeable in bankruptcy. This is simply not true and is a dishonest method of using misinformation and intimidation to influence your actions.  Don't make the mistake of leaving your payday loan off of your list of creditors, this is an unsecured debt and can be discharged in chapter 7 bankruptcy.

Objections of the Creditor

Another issue you may encounter is the rule concerning debts that were acquired less than 70 days before you file for bankruptcy. This rule is meant to discourage people who willfully run up debt with the knowledge that bankruptcy will wipe it out. Creditors may show up at your creditor's meeting to object to this debt and the bankruptcy trustee will then need to rule upon whether or not the debt can be discharged.

Payday loans are considered predatory lenders by some bankruptcy courts, and therefore have little chance of impressing the trustee or recouping their loan to you. So, even if you had to take out a payday loan in the months prior to filing for bankruptcy, you more than likely will be able to show that you did not intend to misuse the bankruptcy for financial gain, and instead was just desperate to pay a bill.

For more information, contact William C Fithian III or a similar legal professional.