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Payday loans and bankruptcy

In our last post, we looked briefly at new rules established by the Consumer Protection Financial Bureau which would protect consumers from some of the more risky aspects of payday lending. As we noted, there is a lot of opposition to the new rules from the lending industry, and it remains to be seen whether legal action would eventually be taken in opposition to the new rules.

It is worth pointing out that those who are in a difficult enough financial situation that they are making use of payday loans should really consider speaking with an experienced bankruptcy attorney to determine their options for debt relief. Payday loans are high risk and using them is generally not a wise decision. 

Using payday loans to pay off debts or make ends meet can lead a struggling debtor into a sea of debt that can become very difficult to escape from short of bankruptcy. Typically, a debtor will have other, safer alternatives available to help them address their financial situation.

That being said, those who do carry payday lending debt typically can discharge such debt in bankruptcy, not only because payday loans are unsecured, but also because they don't fall into any special category making them a high-priority debt. In any bankruptcy case, of course, it is important to work with an experienced local attorney not only for accurate information and guidance about the bankruptcy process, but also for zealous advocacy to ensure one's interests are well represented throughout the bankruptcy process.

Source: Nerdwallet, "How the `Vicious Trap' of Payday Loans Caught a Texas Mom," Claire Tsosie, Nov. 7, 2014. 

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