Payday loans are small, short-term, unsecured loans often known as cash advances. These loans usually rely on the consumer having previous payroll and employment records. Payday loans are risky. The default rate on these loans has been reported to be as high as 10-20 due to high interest rates. In most cases, debtors can discharge payday loans through a Chapter 7 bankruptcy, or a portion of the debt through Chapter 13.
Before a debtor files for bankruptcy due to a payday loan, he or she should ensure the loan came from a Florida Licensed lender. In Florida, there are a number of restrictions on these loans that include not lending more than $500, and not lending to a person who already possesses an outstanding payday loan. State statutes limit the fees charged on a payday loan to 10% of the total loan amount. This is the interest rate for the specific loan term, not an annual interest rate. If the borrower cannot pay back the payday lender, the lender is limited to demanding the original amount lent plus the 10% fee, simple costs, and any bad check fees imposed by the bank. The lender cannot charge the borrower any other costs unless a court rules otherwise.
Payday lenders may be able to successfully object to a borrower’s payday loan being discharged in a Chapter 7 bankruptcy under certain circumstances. This usually happens if the borrower received a loan from the payday lender within 70-90 days prior to filing their bankruptcy. The lender may argue to the court the borrower took the loan with no intention of paying it back.
However, payday lenders are often unsuccessful in winning these objections. The courts require payday lenders to prove the borrower fraudulently borrowed the money. This is quite difficult to prove, but not impossible, which is why it is important to have an experienced bankruptcy attorney guide borrowers through this process.
There are a few ways to avoid a payday lender’s objection to a debt discharge. The best way to avoid this is for a borrower to wait 90 days after his or her last payday loan. This would mean a payday loan lender would no longer be able to object to the loan being discharged. A borrower may also avoid this litigation by filing a Chapter 13 bankruptcy, which may allow the lender to receive a portion of the debt.
To receive a payday loan, borrowers may often be required to give the lender a post-dated check to receive the loan. A payday loan lender who tries to then cash this check after a borrower has filed bankruptcy may be in violation of Florida’s automatic stay law. An automatic stay usually bars creditors from taking collection actions after a bankruptcy has been filed. Being required to provide a payday lender with a post-dated check may also allow a payday lender to threaten borrowers by accusing them of check fraud. In Florida, the payday lender is not usually allowed to pursue criminal action against a borrower who has filed for bankruptcy.
For more information on payday loans and how these loans affect bankruptcy, contact a Jacksonville Bankruptcy Lawyer.