Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
If you’ve ever taken out a payday loan, you probably know how quickly it can spiral out of control. What starts as a small loan to cover an unexpected expense often turns into a cycle of debt, with high interest rates that make repayment nearly impossible. Many borrowers in Wisconsin find themselves trapped rolling over loans, taking out new ones to pay off the old ones, and dealing with relentless collection calls.
Are you in this situation? You’re not alone. The good news is that bankruptcy may offer a way out. Filing for bankruptcy can eliminate payday loan debt, stop collection harassment, and give you a fresh financial start.
But how does it work? Are payday loans dischargeable in bankruptcy? Which type of bankruptcy is right for you?
In this guide, we’ll break down how payday loans are treated in bankruptcy, key Wisconsin laws that protect borrowers, and what to expect from the process. If payday loan debt is overwhelming you, understanding your legal options is the first step toward regaining financial control.
Payday loans are short-term, high-interest loans. They’re designed to provide quick cash advances before your next paycheck. Payday might seem convenient. Unfortunately, they often trap borrowers in a cycle of rollovers, late fees, and ever-growing interest rates.
Wisconsin has some of the country’s weakest payday lending regulations. Unlike other states that cap payday loan interest rates, Wisconsin has no maximum APR limit. This means payday lenders in Wisconsin often charge interest rates exceeding 500% APR, making timely loan repayment nearly impossible for borrowers.
“Wisconsin payday loan borrowers often face APRs exceeding 500%, making repayment nearly impossible without outside financial relief.”
Many borrowers take out multiple payday loans to cover the previous one. The result: a cycle of debt that’s hard to escape. This is where bankruptcy may provide a way out.
Each option works differently, and understanding the distinction is key to choosing the right path.
Often called “liquidation bankruptcy,” Chapter 7 allows you to eliminate most unsecured debts including payday loans. However, a few key details matter:
“Under U.S. bankruptcy laws, payday loans taken within 70 days of filing may not be eligible for discharge due to fraud presumptions.” – 11 U.S.C. § 523(a)(2)(C)
Chapter 13 may be a better fit if you have steady income or want to protect assets. In this plan:
Whether Chapter 7 or Chapter 13 is the right option depends on your income, the timing of your payday loans, and your long-term financial goals. Both paths offer relief, but they address payday loan debt in very different ways.
In most cases, payday loans can be discharged in bankruptcy. However, there are some important exceptions to keep in mind. If the loan was taken out shortly before filing, your lender may challenge the discharge by claiming it was obtained fraudulently. Courts often view loans made just before bankruptcy with extra scrutiny.
Another exception arises when false information was provided on the loan application. If the lender can show that you misrepresented your financial situation or borrowing intent, the debt may be ruled non-dischargeable.
In rare situations, a payday lender might hold a security interest in your property. If that’s the case, they could attempt to recover the collateral even if you file for bankruptcy.
That said, the majority of payday loans are unsecured debt. Because they are not tied to any collateral, they are typically easier to eliminate in a Chapter 7 bankruptcy.
“In Wisconsin, payday lenders are prohibited from threatening criminal prosecution for unpaid loans under Chapter 427 consumer protection laws.”
|
Feature |
Chapter 7 Bankruptcy |
Chapter 13 Bankruptcy |
| Eligibility | Must pass the means test | No income limit, structured repayment required |
| Discharge of Payday Loans | Typically dischargeable unless recent or fraudulent | Included in repayment plan, possible partial discharge |
| Time to Completion | 3–6 months | 3–5 years |
| Impact on Credit | Stays on report for 10 years | Stays on report for 7 years |
| Best For | Borrowers with low income and high debt | Those with steady income needing structured relief |
Yes, payday loans are usually dischargeable in Chapter 7. However, loans taken right before filing may not be discharged if considered fraudulent.
Yes. Once you file, an automatic stay goes into effect. This stops payday lenders from calling, garnishing wages, or suing you.
Yes, if they believe you took out the loan without intending to repay it. That said, most payday loans are successfully discharged.
A Chapter 7 bankruptcy stays on your credit report for 10 years, but you can rebuild by making timely payments and responsibly using secured credit.
Yes. Options include debt consolidation, credit counseling, and negotiating settlements. But bankruptcy is often the most effective way to eliminate payday loan debt.
Payday loan debt can feel impossible to escape, but bankruptcy provides a legal way to eliminate or restructure it. Understanding how payday loans are handled in Chapter 7 and Chapter 13 can help you break the cycle and rebuild financial stability.
If you’re struggling with payday loan debt, speaking with an experienced Wisconsin bankruptcy lawyer can help you understand which option is best for your situation.
Schedule a free consultation with Debt Advisors Law Offices today to learn how bankruptcy may provide the relief you need and give you a path to a stronger financial future.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
