A common question we are asked is, “Can I file bankruptcy with cash advances?” Below are answers to FAQs about cash advances.
We encourage you to explore the answers to these questions about cash advances and bankruptcy and then contact Ascend to talk about your debt-relief options.
What Is a Cash Advance?
A cash advance or pay advance is a short-term loan. Unfortunately, it is an expensive loan that can be difficult to pay off. Cash advances are often referred to as payday loans because the loan term is usually two to four weeks or until you receive your next paycheck. Think of pay advances as an advance on your next paycheck.
How Do Cash Advance and Payday Loans Work?
You give the lender a check dated for your next payday or sign an authorization for the lender to withdraw money directly from your checking account. On that date, the lender deposits the check or withdraws the money from your bank account.
Of course, the lender charges interest on the loan. Cash advance lenders charge an enormous amount of interest on their loans. You could pay interest that would equal 400% APR (annual percentage rate). Compare that to the average APR for a loan from a credit union or bank, which is usually between six and eight percent. The average credit card charges less than 28% APR for cash advances
If you cannot pay the cash advance or payday loan, the lender may “roll over” the loan to the payday. Rolling over the loan gives you another two weeks to pay the loan. Of course, you must pay a fee for rolling over the loan. In addition, the loan accrues interest.
For some individuals, it is impossible to pay off the original loan. Therefore, they pay the fee every two weeks to extend the loan because they do not have the money to pay the original loan in full.
Many states have enacted laws restricting how much cash advance companies can charge. However, these lenders continue to take advantage of honest, hardworking people who need a little help to make ends meet for a few weeks.
How Much Does Bankruptcy Cost and Do You Qualify?
We built a Chapter 7 bankruptcy cost and qualification calculator below to help you estimate how much it would cost to file bankruptcy, which may help eradicate your cash advances and pay day loans.
Cash Advances and Bankruptcy: What If I Just Got a Cash Advance? When Can I File Bankruptcy?
Most debts are discharged (erased) in bankruptcy. However, there are special rules for specific debts, including cash advance loans. Some debts taken out right before filing bankruptcy are presumed to be non-dischargeable under Bankruptcy Code §523(a)(2)(C)(i)(II).
Cash advances and bankruptcy are possible under certain circumstances. In many cases, cash advances and bankruptcy cases are possible if the amount of the cash advance is less than $1,100. However, the amount can change, so it is always best to talk with a bankruptcy lawyer about cash advances and bankruptcy if you took out a recent cash loan.
However, if you took out a cash advance of more than $1,100, you need to wait at least 70 days before filing bankruptcy to avoid a presumption that the debt is non-dischargeable. If you file a bankruptcy before 70 days after a cash advance of more than $1,000 (or multiple cash advances from the same lender totaling more than $1,000), the debt is non-dischargeable. In other words, a bankruptcy will not get rid of the debt if the creditor objects by filing an adversary proceeding.
IMPORTANT NOTE: The cash advances and bankruptcy rule includes payday advance loans and cash advances on your credit cards.
Are Cash Advances Discharged in Bankruptcy?
You can discharge cash advances in bankruptcy if:
- You did not incur the debt within 70 days of filing bankruptcy; OR,
- The debt is less than $1,100 if incurred within 70 days of filing bankruptcy; AND,
- You have not committed any fraud in obtaining the debt.
The best step is to wait 70 days after the last cash advance to file for bankruptcy relief. However, if you cannot wait, talk with a bankruptcy lawyer. There could be several options that the bankruptcy attorney could offer for handling the problem so that you can file bankruptcy and get rid of the debt.
Can I Get a Cash Advance During a Bankruptcy Case?
You are not permitted to incur debt without bankruptcy court approval during your bankruptcy case. Your bankruptcy case could be dismissed if the trustee or the court discovers you incurred the debt without court approval. It is highly doubtful the court would allow you to take out a cash advance during Chapter 7 or Chapter 13.
Talk with your bankruptcy lawyer about possible solutions if you have a problem. For example, if you are in a Chapter 13 case and need money because of a decrease in income, you could qualify to convert your Chapter 13 case to a Chapter 7 case. If so, you could get rid of your unsecured debts and get out of bankruptcy within a few months without paying any more money to the Chapter 13 trustee.
Alternatives to Cash Advances
Before applying for a cash advance or a payday loan, consider these alternatives to cash advances:
Introductory 0% APR rates
Some credit cards offer a zero percent APR rate for purchases and other essential items. However, you owe the credit card company and must pay the balance off within the introductory interest period, or you will be charged interest on the debt. Also, you must be careful not to charge more than you can pay off, or you could create a future debt problem.
Friends and Family
Check with your friends and family about a short-term loan. You might be able to work it out to pay them a set amount every payday to repay the loan. In addition, your loved ones may not ask you to pay interest on the short-term loan.
Personal Loans
Inquire about a personal loan from your bank. Credit unions are generally a great place to apply for a personal loan. The interest rate should be much lower than a payday advance. In addition, you could set up automatic payments from your paycheck each pay period to ensure you pay back the loan to avoid creating a future debt problem.
Ask for Assistance
If you need money to buy groceries, pay a utility bill, or other essential needs, look into local organizations that offer assistance to individuals facing hardships. Check with local churches, charitable organizations, community centers, and government agencies.
Retirement Loan
You might be able to take a loan against your 401(k) or retirement loan. In addition, some accounts allow for hardship withdrawals. However, talk with a bankruptcy lawyer before borrowing against or withdrawing your retirement funds. Most retirement accounts are protected in bankruptcy. Therefore, you might be eligible to file for bankruptcy to get rid of debts while protecting your retirement funds.
Collateral loans might be another option or a short-term loan. However, you would need to give the lender a lien on your property (i.e., household goods, vehicle, home, etc.). If you do not repay the loan, the lender can repossess the property. Before going this route, talk with Ascend about your other options. There could be a better option for dealing with a debt problem that protects your property, gets rid of your debts, and gives you the fresh start you need.
Let Ascend Help You Find an Affordable Way Out of Debt
Filing Chapter 7 bankruptcy helps many people get out of debt quickly. Chapter 13 bankruptcy cases provide affordable repayment plans that protect people from their creditors. However, there are other ways to get out of debt.
Ascend helps you explore your bankruptcy options and your non-bankruptcy alternatives for debt relief. Our free bankruptcy and debt relief calculators help you compare your options for getting out of debt.
Call or text us at (833) 272-3631 or contact us online for a free case evaluation. Our compassionate, friendly, and knowledgeable team members work with you to determine the best way for you to get out of debt
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