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The Dilemma of Payday Loans Prior to Filing Bankruptcy

Written By emilie dane on Tuesday, February 26, 2013 | 1:40 PM


Ever since the economic downturn back in 2008, the popularity of payday loans continues to increase. Not because they are great and easy to use, but have become a necessary evil for those that are so far in debt they need to use them to survive. While, sometimes it takes a last resort to use filing bankruptcy as a way out of debt, many have to learn the hard way. In fact, many people burn through assets and even borrow against their 401(k) before making the decision to file for bankruptcy. Recently, payday loans have become available online and it makes me lead to the question, Why would anyone take out a payday loan on the Internet? When it comes down to it, why would anyone take out a payday loan? For those of you who don't know, payday loans are usually small, high interest loans that are borrowed for a short time with the security of a post dated check. If you ask a bankruptcy lawyer about these loans, they would go back to the question, why?

These new payday loans that are available on the Internet has the individual agree to take out the payment with interest and fees electronically from their bank account on a certain date. The idea of a post dated check is a nightmare in itself for a bankruptcy lawyer. The bankruptcy law allows someone holding a post dated check to cash it even after filing bankruptcy. So this means after an individual files for bankruptcy, the automatic stay will not protect them from this kind of loan. The creditor will be able to collect the money from the debtor because of the post dated check or the electronic check they authorized the creditor to deduct. This is why a bankruptcy attorney will tell an individual in financial trouble to consider filing Chapter 7 bankruptcy before resorting to using payday loans. Using an Internet loan creates a new set of problems for the bankruptcy lawyer representing their client. Many times it's hard for them to even come up with an address to notify them in the bankruptcy filing. Many of these banks involved in this unscrupulous business of loan sharking are offshore and are not regulated by our laws. In a nutshell, even suing them won't guarantee getting the debtor's money back even after filing bankruptcy.

Being under the stress of unmanageable debt makes people make bad decisions. This is one decision that should never be considered unless it's a onetime deal because of an emergency. What happens to people that use payday loans is they keep getting less and less of their paycheck because of the interest and fees, virtually kiting them into bankruptcy. It would be better to consult a bankruptcy lawyer before even using a payday loan service. Sometimes the money you save would be that the that the bankruptcy lawyer would charge. Filing Chapter 7 bankruptcy will wipe out all unsecured debt, including payday loans. It's just that many of these loan companies don't care about the court order and play by the same rules. It's better to avoid payday loans altogether.

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