A payday loan can be included if you go bankrupt. But what are the consequences of including these types of debts and will you be accused of fraud?

Included in this article:

• What happens to a payday loan if I go bankrupt?
• Can I go bankrupt if I took a loan recently?
• Can I get a payday loan during my bankruptcy?

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What happens to a payday loan if I go Bankrupt?

Payday loans are unsecured debts. As such they can, and in fact must be included if you go bankrupt. They will then be written off in the same way as any other unsecured debts that you have.

If you are currently getting hassle from a lender because you can’t repay your loan, Bankruptcy will stop this. As soon as you are bankrupt they are no longer allowed to demand payments from you. Instead the Official Receiver will deal with them on your behalf.

Your payday loan may be paid via a continuous payment authority from your bank account. This is where the loan company uses your debit card details to take their money. Once you are bankrupt the should stop doing this so you won’t need to worry about money disappearing from your account without your agreement.

If you go bankrupt even money owed to payday loan companies that have now stopped trading (such as Wonga or QuickQuid) is written off.

If I took a payday loan recently and then go bankrupt is it fraud?

People often decide to get a payday loan after all other options for borrowing have been exhausted. If you continue to struggle with debt after this it is then quite common to get advice and decide to go bankrupt.

But if you do this, could you get into trouble for borrowing so recently and even be accused of fraud? The answer is no. A payday loan company will often suggest you may be guilty of fraud if you tell them you can’t repay their debt. However in reality they would never be able to make this stick.

If they were to try, any Court would actually blame them for making a bad lending decision. In reality you would almost certainly have intended to repay any loan you borrowed. The company would be in the wrong for not doing sufficient credit checks to ensure you were in a position to repay what they lent you.

If you go bankrupt just after taking a payday loan this is not fraud. You will not be blamed for the company’s poor lending decision.

Can I get a loan while I am bankrupt?

After you go bankrupt your credit rating will become poor. You will therefore find it difficult to borrow more money from normal lenders. But if you need cash in an emergency you might still be able to get a payday loan. This is because these types of lenders are often prepared to lend to people with a poor credit rating.

If you borrow less than £500 you are not obliged to tell the payday company that you are Bankrupt. This might help with your application. However borrowing more in this way is definitely not recommended.

Remember, you are responsible for repaying any new debts that you take on after the date that you go bankrupt. Given you will have little or no spare income (over and above what you need to live on) repaying new debt will be very difficult.

Avoid borrowing more money while you are bankrupt if you possibly can. Even after your bankruptcy is over taking a new payday loan is unlikely to help improve your credit rating.