By David Pilley on September 16, 2010
.jpg.aspx?width=75&height=75) If you’re looking for a loan, a payday loan should be a last resort option. You will have to pay it back within thirty days, and it will have an enormous amount of interest tacked on. Similarly, if you are having trouble paying back your debts, filing for bankruptcy should be your last option. In short, bankruptcy is a legal declaration of your inability to pay your creditors. Bankruptcy can be a complex process that can damage your credit for a substantial length of time. The two most common types of bankruptcies are Chapter 7 and Chapter 13. Chapter 13 bankruptcies stay on your credit report for seven years, while Chapter 7 bankruptcies will last for ten years.
Chapter 7 bankruptcies deal with liquidation, or the selling and redistribution of your non-exempt property. Most liens, like mortgage loans and car loans, survive your declaration of Chapter 7 bankruptcy; therefore, you are still at risk of repossession and/or foreclosure. Most cases, however, are deemed “no asset” bankruptcies, meaning the state will allow you to keep your property. Many types of unsecured debt are discharged when you file under Chapter 7; however, there are many exceptions, including child support, student loans, and property taxes.
Chapter 13 bankruptcies, on the other hand, deal with reorganization. This type of bankruptcy requires a court-approved plan of the repayment of your debts. You can be eligible to file under Chapter 13 up to a certain amount of debt. Section 109(e) of Title 11, United States Code, sets the limit of unsecured debt at $360,745 and secured debt at $1,081,400. Filing under Chapter 13 can prevent foreclosure, but you must adhere to the payment plan, which will last between three and five years.
A debt from a payday loan is an example of unsecured debt. It can be discharged when you file for either type of bankruptcy, but it depends on when the original loan was taken out. Debt accrued within two months of your bankruptcy filing can be contested by your creditor because of the fact that you may have been contemplating filing for bankruptcy at the same time you were accruing new debt. Payday loans will also be contested by your creditors because of the nature of the loan. A payday loan is a type of revolving loan, meaning that it is renewed periodically. In the case of a payday loan, it is renewed every 30 days. Therefore, a creditor can contest the inclusion of your payday loan in your bankruptcy filing. Your judge may overrule the contest because of the predatory nature of payday lenders, but the creditor will most likely appeal. Payday loans and bankruptcy could lead to months and even years of enduring a legal nightmare, so think hard before you do either. |