For those drowning in debt and unable to pay bills for basic necessities, a short term loan such as a payday loan, cash advance loan, or title loan may seem like an intriguing option. However, these types of loans are typically only designed to hold you over until the next pay check and often times can end up creating a revolving cycle of needing additional loans in order to “catch up”. Many times there is no “catching up” and the receivers of these loans end up filing for bankruptcy. This is sometimes called the “debt spiral”. Let’s take a closer look at how short term loans are handled in a bankruptcy case.
Short Term Loans in Bankruptcy
In a chapter 13 Bankruptcy case a shorter term loan is placed in the unsecured debt category and subsequently paid back over the course of 36-60 months. If you are able to complete the repayment plan ordered by the court, then any leftover amount is discharged. Alternatively in a Chapter 7 bankruptcy, which are harder to qualify for, the short term loan will most likely be discharged along with any other unsecured debt.
It’s important to note that when you took the short term loan is of importance in your bankruptcy case and U.S. bankruptcy code has regulations on how long ago any dischargeable debt was taken on prior to the bankruptcy filing. For unsecured debt, it is typical that any debts acquired within 90 days of filing cannot be discharged and will have to be repaid. You should make the decision to file bankruptcy only after consulting a qualified bankruptcy attorney in the area you would file. A bankruptcy lawyer in Sacramento can explain how different debts will be handled in a bankruptcy case, which chapter of bankruptcy is right for you, and if there are alternatives to bankruptcy that you may want to consider.