The Los Angles Times recently ran a feature story about payday loans – those short term, high interest loans that service customers who need a cash advance in advance of their regular paychecks to cover emergency expenses. According to the story, Cleveland is where W. Allan Jones founded Check Into Cash, the granddaddy of modern payday lenders, which cater to millions of financially strapped working people with short-term loans — at annualized interest rates of 459%.
As attorneys and financial counselors, we at Clark and Washington encourage our clients to avoid payday loans. If you find yourself turning to this lender of last resort, it should serve as a signal that you need to consider significant changes to how you handle your finances.
A Chapter 7 or Chapter 13 bankruptcy may be one of those changes that you should consider. While bankruptcy is a last resort, it can eliminate credit card debt, allow you to walk away from a house or a car with no penalty and it can provide a structure to pay back “permanent” debts like taxes and student loans.
If you find yourself turning to payday loan lenders, we encourage you to stop, step back and considr calling our office for a free debt evaluation. Bankruptcy may not be the right answer for you, but there is simply no reason not to learn if the bankruptcy option can improve your quality of life.
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One of the more interesting features of Chapter 13 law is something called the “co-debtor stay.” Set out at Section 1301(a) of the Bankruptcy Code, the co-debtor stay disallows collection action on consumer debt against co-debtors of the person filing for bankruptcy. A typical scenario – you file Chapter 13 and include a debt to Best Buy for a new television. Your mother co-signed the loan with you. Your Chapter 13 protects your mother from collection efforts for as long as you remain in Chapter 13.
Now the obligation of the co-debtor does not disappear. If you repay a consumer debt at 30 cents on the dollar in your Chapter 13, your co-signer will be liable for the remaining 70% after your case is over. However, during the time you are in Chapter 13, your mother is protected. Often in these cases debtors will set up special payment classses in their chapter 13 plans to pay co-signed debts in full to protect the co-debtor. In other situations – such as when the co-signer is an ex-spouse, the co-debtor is left exposed.
The co-debtor stay only applies to consumer debt and it only applies in Chapter 13. If you have co-signed debts, make sure to tell your lawyer so that appropriate decisions can be made.
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