Can You Include Payday Loans in Bankruptcy?

When financial hardship strikes, individuals may resort to various methods to alleviate their monetary burdens. One such method is obtaining a payday loan to meet immediate financial obligations. However, these high-interest, short-term loans can often exacerbate the financial situation if not managed properly. But the looming question remains, “Can You Include Payday Loans in Bankruptcy?”

This article delves into the nuances of payday loans, their implications, and their eligibility for inclusion in bankruptcy. It also provides a comprehensive understanding of the bankruptcy process and the role of Licensed Insolvency Trustees in managing bankruptcy cases.

Understanding Payday Loans

Payday loans are a form of short-term credit typically employed by individuals facing immediate financial needs. These loans are characterized by high-interest rates and fees, making them significantly more costly than traditional loan types.

In places like Alberta, a borrower may avail up to $1,500 as a payday loan with a repayment period of up to 62 days. However, missing the first repayment deadline can result in additional charges and penalties. This often leads borrowers into a payday loan cycle, where they take out new payday loans to pay off existing ones, creating an endless loop of debts.

Payday Loans: An Unsecured Debt

Payday loans fall into the category of unsecured debts. This essentially means that these debts are not tied to any collateral, and their repayment is not secured by any physical assets. In the event of bankruptcy, unsecured debts like payday loans can be discharged, freeing the debtor of the obligation to repay them.

Comparing Secured and Unsecured Debts

Understanding the difference between secured and unsecured debts is crucial in comprehending their implications in bankruptcy proceedings.

Unsecured Debts

Unsecured debts include credit card balances, unpaid utility bills, retail accounts, and payday loans. Bankruptcy can discharge these types of debt. However, certain obligations like student loans, child support, and court-ordered fines and debts remain unaffected by bankruptcy.

Secured Debts

Secured debts, on the other hand, are tied to collateral, which acts as a guarantee for the lender. Common forms of secured debts include mortgages, car loans, and government debts and taxes. If the borrower fails to repay these loans, the lender has the right to seize the collateral to compensate for the losses.

Navigating through the Bankruptcy Process

The bankruptcy process can be a complex journey, requiring a thorough understanding of its stages and the roles of various stakeholders involved.

Bankruptcy Eligibility

To be eligible for bankruptcy in Canada, an individual must meet certain criteria:

  • Residing in Canada, owning land, or owning a business in Canada.
  • Insolvency for up to $1000 or more.
  • The value of the debtor’s debts exceeds the value of their assets.
  • The debtor is unable to pay their debts by the due dates.

If these criteria are met, the individual may be eligible to file for bankruptcy.

Types of Bankruptcy

Bankruptcy can be voluntary or involuntary, depending on the circumstances surrounding it. A voluntary assignment happens when an individual willingly offers their assets for the benefit of their creditors. In contrast, an involuntary assignment occurs when a creditor files a bankruptcy petition against the debtor to reclaim losses.

Role of a Licensed Insolvency Trustee (LIT)

In a bankruptcy proceeding, a Licensed Insolvency Trustee plays a pivotal role. They assist the debtor in formulating the bankruptcy proposal and file it on their behalf. Once the bankruptcy is filed, the LIT represents the debtor in all communications with the creditors and oversees the sale of certain assets to repay the creditors.

The Stay of Proceedings

The Stay of Proceedings is a period during the bankruptcy process when creditors are barred from contacting the debtor for payments, garnishing their wages, or initiating lawsuits. This period lasts between 9 to 21 months, during which the debtor is required to attend two financial counselling sessions. At the end of this period, the debtor is discharged of their unsecured debts, but a notice of bankruptcy remains on their credit report for up to 6 years.

Concluding Thoughts

If you’re grappling with payday loans or any other form of unsecured debts, understanding your options is crucial. Bankruptcy can be a viable solution to alleviate your financial burdens. However, it’s equally important to seek professional advice to understand all potential implications fully.

So, if you’re asking, “Can You Include Payday Loans in Bankruptcy?” the answer is yes. But it’s important to consult with a Licensed Insolvency Trustee to ensure you’re making the best decision for your financial future.

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