Bankruptcy expert Leon Bayer answers real-life questions.
I plan on filing for bankruptcy soon. I have a few payday loans that I have been rolling over and paying interest on. The payday loan people said if I try to stop payment on my check to them, it is the same as writing a bad check and they will have the district attorney press charges against me. If I don’t pay them am I going to be in serious trouble? They also said I can’t discharge a payday loan in bankruptcy. I am so worried that I can’t sleep.
Your failure to pay the payday loan “people” (I use that term loosely), will not get you in trouble. I am assuming that your bankruptcy case will be filed very soon.
How a Payday Loan Works
Here’s how a payday loan works. You give the payday loan company a post-dated check (the payday loan company actually creates an electronic check for you with a specific check number, just as if it were a paper check.) In return it gives you cash in an amount less than the face value of the check. The payday loan company holds the check for a few weeks (often until your payday). At this time, you must pay the company the face value of the check, usually by allowing it to cash the check. If you can’t make good on the check, the lender requires you to pay another fee.
(Here are some reasons why it’s best to avoid payday loans.)
Stopping Payment on a Payday Loan Check Is Not Bad Check Fraud
Putting a stop payment order on a post-dated check you gave to a payday loan company is not the same as writing a bad check. A “bad check” is a check that you knew was not good at the time you wrote it, but the payee did not. In contrast, when you give a post-dated check to a payday loan company as security for a payday loan, both you and the company know the check was not good on the day you gave it.
Here’s an example. I give a bad check at the grocery store and walk out with a bag of groceries. I might face prosecution for writing a bad check if it can be shown that I knew I had no money in the account when I wrote the check. A payday loan is different. The company knew you had no money to back up your check on the date you borrowed the money. So long as you had the honest belief at the time you borrowed the money that you would repay it when due, there has been no wrongdoing. In fact, the payday loan people consented to your delay in payment by letting you pay extra interest to roll over the loans.
The Payday Folks Lied to Scare You. Now Get Some Sleep
Doctors have recently proven that sleep is good for you. Get some. The payday folks have lied to scare you. They are the ones who should be losing sleep. In your case I don’t think they will ever get paid.
In my 34 years of bankruptcy law experience, I have never seen a payday lender so much as try to challenge anyone’s bankruptcy.
Go ahead and stop payment on the checks that you gave to the payday loan “people.” Tell them I said “Merry Christmas.”
Leon Bayer is a Los Angeles bankruptcy attorney. He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy. The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo. By answering a question on this blog, Mr. Bayer does not become your lawyer.