Payday loans provide instant cash when you need to pay pressing bills. The problem is, they can also lead to a downward spiral of debt due to their high interest rates. One recent study found taking out payday loans increases your odds of filing for bankruptcy.

If you are contemplating bankruptcy and have taken out payday loans, know that payday loans are a debt that can be discharged in bankruptcy. Their treatment is similar to the treatment of any other type of personal loan or credit-card bill you have outstanding at the time of the bankruptcy filing.

The range of debts that are discharged in a bankruptcy varies depending on the type of bankruptcy. For instance, in a Chapter 7 bankruptcy some of the debts that are not dischargeable include child support, tax debts, student loans and loans you have taken from your pension plan. But payday loans and other personal loans can be fully discharged.

You should know that many payday lenders will include a clause in their loan paperwork saying that you cannot include their payday loan in a bankruptcy proceeding. But this clause is not supported by the law. Even if you agreed to such a clause in your loan terms, you may still be able to discharge the payday loan in a Chapter 7 bankruptcy.

Chapter 13 bankruptcy is different -- it's a program in which you will create a repayment plan. You may make smaller payments to your lenders than you currently owe, or the total amount owed may be reduced, but you will be required to pay at least part of many of your debts, usually in monthly installments.

In such a plan, you might discharge part of your payday loan in the bankruptcy. If you are unable to complete your repayment plan, the payday loan might be discharged under a hardship provision.

Filing for bankruptcy is not a move to be undertaken without careful consideration. For expert legal guidance on whether your payday loans would be discharged if you filed for bankruptcy, contact The Chernev Firm to schedule a free consultation. 

The Chernev Firm, 601 Montgomery Street, Ste. 1150, San Francisco, CA 94111