Can You File Bankruptcy on Payday Loan?

Payday loans can trap you in a vicious circle of borrowing against future income to pay bills today. The cost of these loans adds up quickly because of high interest rates. If you don’t pay them off per the terms of the loan, payday loan debt can also land you in court for unpaid debts. If you’ve got a debt challenge tied to payday lenders, filing for bankruptcy may provide you with the debt relief you need. 

What Is a Payday Loan?

Payday loans are often used when someone needs cash fast. They are also known as cash advances, paycheck advances, or check advances.

Payday loans are usually short-term loans that are due within 2-4 weeks of when you get your next paycheck or on a scheduled date you’ll receive income from another source, such as Social Security.

Many companies require you to write a post-dated check in the amount of the payday loan when you obtain the loan. The check is dated for your next payday. The company then deposits your personal check on that date.

People often struggle to pay back payday loans because of their high interest rates and other fees. Payday lending can often trap people living paycheck to paycheck in a cycle of continually taking out payday loans to make ends meet today. Because these short-term loans are so expensive, this becomes a costly way to live — especially if you’re already strapped for cash before your next paycheck. 

Some states have laws that limit how much payday lenders can lend or how they can operate. 

How To Protect Yourself From Payday Loan Collectors

If you’ve fallen behind on payday loan payments, you may start hearing from debt collectors. Some may follow the rules, but others push the limits or cross them entirely.

That’s where the Fair Debt Collection Practices Act (FDCPA) comes in. This federal law makes it illegal for debt collectors to use abusive, misleading, or harassing tactics when trying to get you to pay.

The FDCPA applies to third-party debt collectors—meaning anyone collecting on the payday lender’s behalf, not the lender itself. Many payday lenders use outside agencies to chase down unpaid loans, so these protections often apply.

What Payday Loan Collectors Can’t Do

Even if you owe the debt, collectors have strict limits on their behavior. Under the FDCPA, they can’t:

• Threaten to have you arrested or put in jail for not paying.

• Use profanity, insults, or other abusive language.

• Call you repeatedly to harass you. They can only contact you between 8 a.m. and 9 p.m.

• Keep contacting you after you’ve told them in writing to stop.

Your Right To Information

Debt collectors must also tell you who the original creditor is. If they don’t do this during the first call, they must send it to you in writing within five days.

This gives you the chance to double-check that the debt is actually yours and that the amount is correct.

While the FDCPA can stop harassment, it doesn’t erase the debt itself. If you’re buried in payday loans and other bills, you may want to explore bigger solutions—like bankruptcy—that can not only stop collection calls but also wipe out many payday loans for good.

What Are My Options if I Can’t Pay Back My Payday Loan?

If you take a payday loan and are unable to back it back, you can try to refinance the loan or consider filing bankruptcy.

• Refinance: If you have a check advance loan that you can't pay, the company may allow you to refinance or extend the loan. But this often comes at a very high price. Payday loan companies often charge expensive fees to refinance, and doing so may increase the interest charged on the loan.

• Bankruptcy: Filing a Chapter 7 bankruptcy case can wipe out payday loan debt, as well as other debts like credit card and medical bills.

Can You File Bankruptcy on Payday Loans?

Yes. If you’ve been juggling multiple payday loans—or just one that keeps rolling over—bankruptcy may be a way to break the cycle for good. Filing can stop payday lenders from contacting you, suing you, or taking money from your bank account. And in many cases, payday loan debt can be completely erased.

Two Main Bankruptcy Options for Payday Loan Debt

Most people file under Chapter 7 or Chapter 13 of the Bankruptcy Code. Both can help with payday loans, but they work in different ways:

• Chapter 7 Bankruptcy

  • This is the faster, more common option.

  • It usually takes about four months from start to finish.

  • Chapter 7 can erase many types of debt—including most payday loans—forever.

  • Once the court grants your discharge, you’ll no longer owe the discharged payday loan debt, and the lender can’t try to collect from you again.

  • Other debts often discharged in Chapter 7 include credit cards, medical bills, personal loans, and overdue utility bills.

• Chapter 13 Bankruptcy

  • This type of bankruptcy creates a 3–5 year repayment plan for your debts.

  • You make one monthly payment to a trustee, who then pays your creditors.

  • At the end of the plan, any remaining payday loan balance is typically wiped out through a discharge, just like in Chapter 7.

  • Chapter 13 can be a good option if you have income but need more time and structure to catch up on debts.

The Automatic Stay: Instant Relief From Collection Calls

When you file for bankruptcy, something called the automatic stay goes into effect right away. This court order makes it illegal for payday lenders (and other creditors) to keep trying to collect from you while your case is active. That means no more calls, letters, wage garnishments, or lawsuits while the stay is in place.

It’s one of the biggest immediate benefits of filing bankruptcy.

Timing Matters: The 90-Day Rule for Payday Loans

One important thing to know: Payday loans or cash advances taken out within 90 days before filing for bankruptcy can sometimes cause problems. Lenders may try to convince the court you never intended to repay the loan, which could lead to the debt being excluded from your discharge.

Many people wait at least 90 days after their last payday loan before filing to reduce this risk.

Let's Summarize...

Routinely taking out payday loans can spiral into a debt problem that requires a long-term solution. Chapter 7 and Chapter 13 bankruptcies can provide relief from payday lenders. Filing for bankruptcy is a powerful legal tool to stop collection activity, although it isn’t the best solution for everyone. If you don’t have enough money to pay your debts, it’s time to consider your debt relief options. A good place to start is by scheduling a free credit counseling session and meeting with a bankruptcy lawyer for a free consultation. If you choose to file for bankruptcy, know that Upsolve offers a free tool to help you file bankruptcy on your own.