Can you file for bankruptcy if you have taken a cash advance? This is a common question we get at Ascend. Here is what you need to know about cash advances and how they could complicate your bankruptcy case.
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It is a short-term loan from a bank, a lender, or through your credit card. It is often a small amount of money that you need to repay quickly, usually between two to four weeks or until your next paycheck. Usually, the guarantee for the repayment is your next paycheck, so think of it as an advance on your payment from a third party.
A cash advance is convenient and tempting because it is quickly approved, but the catch is the exorbitantly high-interest rate and processing fees. As such, they are expensive loans that can be hard to pay off, trapping you in an unending cycle of debt.
When applying for a cash advance, you fill out your next payday on the form. Alternatively, the lender might ask you to sign an authorization, granting them permission to withdraw the amount directly from your checking account. On your payday, the lender will deposit the check or withdraw the total amount from your bank account.
Due to the convenience of quick approval without necessarily relying on credit scores, the interest tends to be higher. You could end up paying interest amounting to a 400% annual percentage rate, which is overly inflated. A loan from a bank or a credit union charges an APR of 6-8%, while on average, credit card interest has a 28% APR or less for cash advances.
Assuming you have other financial obligations and are unable to repay the loan on the agreed date, what next? The lender might decide to "roll over" the loan. This means it will be due on your next payday. So, you get roughly an additional two weeks to repay the loan.
Rolling over will come at an additional cost, and the interest continues to accrue, which makes it even harder to repay. If you are unable to repay the original loan, you can pay the fees every two weeks. It will help extend the loan since you cannot repay it fully.
Most states have legislated laws restricting how much cash advance lending companies can charge. The goal is to protect consumers from the abnormally high interest on cash advances. Still, despite the laws, lenders continue to take advantage of financially desperate people who might need a financial boost to fulfill their obligations.
You can choose to file either of these two chapters of bankruptcy- Chapters 7 and 13. If you would like to estimate how much you would spend filing Chapter 7 bankruptcy, use our calculator below. It is a cost and qualification calculator that will analyze your unique situation. Feed your details, and get a more accurate estimate of how much it will cost and whether you qualify. If you qualify, you stand a chance to put your never-ending cash advance or payday loan behind you.
As you know, most of your debts will be discharged in bankruptcy. Unfortunately, there is a special rule for certain loans, including a cash advance. According to the Bankruptcy Code section 523(a)(2)(C)(i)(II), loans shortly before filing bankruptcy are considered non-dischargeable.
However, there are some exceptions under which a cash advance and bankruptcy can be possible. If the cash advance is less than $1,100, it could be possible to file for bankruptcy. Since this amount keeps changing, consult a bankruptcy lawyer about a recent cash advance and bankruptcy. They are more up-to-date with the laws and will advise you better.
If your cash advance exceeds $1,100, you might need to wait for 70 days before filing bankruptcy. After 70 days, the advance will be a dischargeable debt. But, if you file for bankruptcy before the 70-day wait period, and your cash advance equals or is more than $1000, the debt will be non-dischargeable. Filing bankruptcy cannot help you eliminate a debt if the creditor objects and files an adversary proceeding.
Note: The cash advance includes any payday advance loan and advances from your credit card.
Yes, your cash advance will be discharged in bankruptcy, but only if:
· You took the cash advance 70 days or more before filing bankruptcy,
· If you took the advance within 70 days of filing, it should be less than $1,100
· You did not commit fraud when applying for the cash advance.
It is best not to take any chances so you can reap the full benefit of filing for bankruptcy. Therefore, if you have a recent cash advance, wait for 70 days and then file bankruptcy. If your financial obligations are a pressing issue, consult a bankruptcy lawyer. There are other suitable options besides bankruptcy that an expert attorney could offer. They might also find a way to get around filing bankruptcy, and you could get rid of debt.
Does the 70-day period seem long, and do you need money urgently? You might be tempted to get a cash advance in the middle of your bankruptcy case. Don't do that. You should not incur debt after filing bankruptcy without the court's approval. Disregarding this could lead to the court dismissing your bankruptcy case, which takes you back to the financial mess you were in. Whether you file Chapter 7 or Chapter 13, it is highly unlikely that the court will let you apply for a cash advance.
Get in touch with a bankruptcy lawyer. They will present the available solutions, and you can discuss each one. If you filed a Chapter 13 case that has led to a decrease in your income and need money, you might convert to a Chapter 7 case. It could work better if successful because you would get your unsecured debts forgiven and, in a few months, get out of bankruptcy without further payment to your Chapter 13 trustee.
The high interest, fees, and fast repayment period of a cash advance loan make it too expensive. Here are some better options for a cash advance:
It is better to get a short-term loan from family or friends. First, you will not need to pay interest or processing fees, which makes it cheaper. Second, you can set a more flexible day to repay the loan. Third, you can extend the repayment date, if you have to, without additional charges.
Ask your bank/ credit union or financial institution if they offer personal loans. We would advocate for a credit union because their interest rate is much lower. You can automate your payment from the next paycheck to repay the loan to avoid creating further financial problems.
When shopping around for the best credit card, consider those with a 0% APR for purchases or money spent on essential items. You will still owe the company and should repay the amount within the introductory interest period. When it lapses, you will be charged the normal interest on the debt. While it is enticing, only charge what you can pay off to avoid getting deeper into debt.
You can take a loan against your 401(k) or retirement fund if you must. Some accounts will allow one to make hardship withdrawals. However, it is often not a wise move, and it is best to consult a bankruptcy lawyer before borrowing. Fortunately, most retirement accounts are protected under bankruptcy, and you might be eligible to file bankruptcy while protecting your retirement nest.
If you can no longer afford necessities like food and rent or are struggling with utility bills, you might need to ask for help. Some organizations offer financial assistance to people going through hardship. You can inquire in a local church, community center, charitable organization, or government agency.
They are a risky option, especially if you are financially unstable. When taking a collateral loan, you need to put something against the amount you receive as a guarantee of repayment. This gives the lender a lien on whatever you submit as collateral- home, car, household items, etc.
If you fail to repay the loan, they can repossess the property, and you could remain homeless without a vehicle or major household items. Before considering a collateral loan, reach out to Ascend. We will listen to your situation and assess all options. There is always a better way to deal with debt without risking your property.
We have helped many people file Chapter 7 bankruptcy quickly and get out of debt. Others file Chapter 13 and get a debt repayment plan they can afford, depending on their financial situations. Besides bankruptcy, there are other affordable solutions out of debt.
We can help you understand bankruptcy and non-bankruptcy options to get you out of debt. We have various resources you can use, like the bankruptcy and debt relief calculator, to see what is better for you.
Reach out through text or call us at (310) 307-5134. You can also reach out to us online and for a free case evaluation. Our knowledgeable, compassionate, and understanding team is willing to work with you and get the best way forward. We understand how overwhelming debt can be and are thrilled to help you turn over a new leaf.
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