You, like many others, may decide to use payday loans this holiday season to help you pay for Christmas gifts. Payday loans have long been a popular option for individuals who are seeking to make up for income gaps with fast loans. Payday loans are one way to buy items around the holidays without going through stringent loan applications and lengthy loan approvals.
It Pays to Know Your Rights
Payday loans have become very common in the past ten years, especially since the financial crisis hit. Short-term loans are a necessity for millions of working people who don’t qualify for traditional loan products. It’s important to understand how payday loans work differently when it comes to bankruptcy laws. The reason this knowledge is important is because many people who are falling behind making payments on other credit accounts often turn to payday loans to help bridge gaps in income and to pay for expensive emergencies such as car repairs.
How Payday Loans Are Treated During Bankruptcy
Most payday loans are categorized in bankruptcy courts the same way other unsecured debts are. These loans are not collateralized or secured in any way and are not considered to be priority debts by the bankruptcy court.
Chapter 7 Bankruptcy Rules
Chapter 7 bankruptcy is the “nuclear option” when it comes to debt. For people who have lost jobs or suffered other major financial setbacks, this form of bankruptcy protection offers them the chance to reset their finances completely. Payday loans, along with all other unsecured debt, is written off by the creditors and cannot be recovered. After the court has approved the bankruptcy petition, all included debt is forever gone. This gives people a chance to start over again from a financial standpoint.
Chapter 13 Requires Repayment
Chapter 13 bankruptcy is the preferred option for people who have steady incomes but are deeply in debt and behind on payments. This form of bankruptcy allows them to restructure their debt into a payment plan that pays back creditors over time. Payday loans and all other unsecured debts are paid back according to the agreed upon plan when a Chapter 13 bankruptcy petition has been approved by the court.
Payday loans are a viable option for the holiday season. You have many rights as a consumer, even if you’ve fallen behind in payments. If you ever have a question about bankruptcy options, feel free to contact a qualified attorney. Bankruptcy is a proven way to help people who need it most.