QUESTION
Can a payday loan contract state bankruptcy cannot be filed?
Asked on Feb 03rd, 2014 on Bankruptcy - Michigan
More details to this question:
A relative of mine got in deep with a payday loan place. They have been paying and borrowing from this guy for 5+ years and owe 8,000 right now. They had been planning on filing for bankruptcy on that and some medical bills this year, but then they read through the contract for the loan they have and it states that by signing it, they agree that they will not file bankruptcy. This guy has been randomly pulling money from their account without notifying them ( just took 600 out recently causing their electric, gas, cell phone, and water bill to all bounce) and because of the high interest, they just can't seem to get ahead. Are they trapped? Because of that line in the contract, can they really not file bankruptcy on this loan? Or is it just another way that these places try and scare people into thinking that they have no choice but to pay the loan? I told them that they should still consult with a lawyer about it, will they be wasting their time?
20 ANSWERS
A provision saying that it cannot be included in bankruptcy has no validity.
Answered on Feb 12th, 2014 at 4:13 PM
A clause in an agreement that precludes a borrower from filing bankruptcy is void as against public policy and is not enforceable. Your relatives should contact competent bankruptcy counsel and get their petition filed.
Answered on Feb 11th, 2014 at 3:56 PM
Bankruptcy Attorney serving Cleveland, OH
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Benson Law Firm
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They most definitely would not be wasting their time in talking to a qualified bankruptcy attorney. Provisions in payday loan contracts that suggest you can't file bankruptcy are unenforceable. Also, there may be some unlawful collections practices here that should be looked into.
Answered on Feb 10th, 2014 at 11:03 AM
General Practice Attorney serving Coeur d'Alene, ID
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Michael B. McFarland, PA
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That contract provision is invalid, and your relative (if otherwise eligible) can file bankruptcy. In Northern Idaho, at least, the prosecuting attorney will not file bad check charges in connection with one of these loans, at least in part because these lenders are inviting - and entrapping- their victims. Consequently, the loan is dischargeable unless there is some collateral. Your relative should contact an experienced bankruptcy attorney for assistance, however.
Answered on Feb 10th, 2014 at 10:45 AM
Creditor's Rights Attorney serving Clayton, MO
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Fluhr & Moore, LLC
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They can still file bankruptcy. You can not agree by contract to give up your right to file bankruptcy.
Answered on Feb 07th, 2014 at 2:31 PM
Bankruptcy Attorney serving Walnut Creek, CA
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Alan E. Ramos Law Offices
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There is a myth that you can "file" on a specific debt or debts; that is absolutely not true. When you file a bankruptcy petition, it MUST include all debts and all assets. With regard to the contract "prohibition" against filing bankruptcy; it is not enforceable, so it can be ignored.
Answered on Feb 07th, 2014 at 2:02 PM
Bankruptcy Attorney serving Hampton, VA
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Haven Law Group, P.C.
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Bankruptcy overrules those types of statements. This loan will be discharged.
Answered on Feb 07th, 2014 at 1:57 PM
Litigation Attorney serving San Antonio, TX
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Graves Law Firm
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They can file if they're otherwise eligible. You can't contract away your right to bankruptcy relief.
Answered on Feb 07th, 2014 at 5:16 AM
Although common, such contract language is void because bankruptcy is a constitutional right. However, it is possible for the creditor to object to the discharge of recent loans (within 3 months) on the basis of fraud. Therefore, it is important for your relatives to wean themselves immediately from dependence on these payday loans and not to borrow any more for 90 days before they file bankruptcy. Meanwhile, they can take steps to protect themselves from the automatic withdrawals by closing their account and putting their money in a different bank or credit union. The creditor will harass them but if your relatives retain a lawyer, they can give the creditor the lawyer's contact information and the creditor is supposed to leave them alone, even before the bankruptcy is filed, because of federal and state debt collection laws. All the creditor can do is contact the lawyer to verify representation. If the creditor chooses to sue, they would have to serve the retained lawyer. Most of them won't do that because they know a judgment can be discharged in bankruptcy.
Answered on Feb 07th, 2014 at 5:16 AM
The agreement not to file bankruptcy as a condition of borrowing money is known as an ipso facto clause and it is unenforceable. Only the bankruptcy court can determine which debts are discharged in bankruptcy. The creditor would have to prove that the debt is not discharged under section 523 of the code.
Answered on Feb 07th, 2014 at 5:16 AM
Deborah F. Bowinski
Your relative should definitely visit with a bankruptcy attorney.
Answered on Feb 07th, 2014 at 5:15 AM
2 Awards
Any agreement waiving one's right to file bankruptcy is unenforcible.
Answered on Feb 07th, 2014 at 5:15 AM
A contract can say anything the parties agree to, but an agreement not to file bankruptcy isn't enforceable. However, if these folks took out a loan knowing that they would be filing bankruptcy, isn't that sort of like robbing the lender by using a pen instead of a gun? Which is why bankruptcy law states that any debt made within 3 months of filing is presumed to have been fraudulently made, and any debt made more than 3 months but less than 6 months may be challenged as being fraudulent. See 11 USC section 523 for more information.
Answered on Feb 07th, 2014 at 5:15 AM
Debt Settlement Attorney serving San Diego, CA
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Law Offices of Kathryn Tokarska
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It can state it but it will not be valid. You cannot contract away your right to file bankruptcy.
Answered on Feb 07th, 2014 at 5:14 AM
That language in the contract is VOID; Unenforceable. They can file BK and discharge the obligation.
Answered on Feb 07th, 2014 at 5:14 AM
Payday loans are bad news and the fact they exist at all and are exempt from usury laws is as good a testament to the greed and corruption of our lawmakers as any. They are required to be licensed however, and many of the internet payday lenders are not. They are often from overseas and many times do not give their physical address. These would be the most likely to have clauses like this and would be the least likely to appear in court. If the payday loan in question here is in fact from a legit company, the clause in their contract is still invalid. One argument I keep expecting such a lender to make is that their loan should not be discharged since it was made very close to bankruptcy and that the Debtor knew at the time they would be filing and never intended to pay it back. A judge might very well be favorable to this argument, but I have not come across it in my practice. In the case of your relative, the bankruptcy clause in the contract actually works against the lender since your relative could claim they did not think they could file until they had advice of counsel. Also, I suspect it took time to get $8,000 deep. Your relative should consult an experienced bankruptcy attorney to assess eligibility, what assets, if any, may not be exempt, and what debts stand to be discharged.
Answered on Feb 07th, 2014 at 5:13 AM
Complex Litigation Attorney serving Costa Mesa, CA
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Thomas Vogele & Associates, APC
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The right to file bankruptcy is established under federal law and no agreement may suspend or vary that right. The loan agreement your relative signed is clearly unenforceable but the "no bankruptcy filing" language is there to intimidate people from exercising their rights. I would recommend that your relative consult with a bankruptcy attorney and make sure they list all of the pre-petition withdrawals the payday lender took from the account. The attorney might be able to force the payday lender to repay these withdrawals under a preference theory. Good luck and tell your relative and everyone who will listen to you that payday lenders are the most predatory form of lenders out there and to avoid them at all costs.
Answered on Feb 07th, 2014 at 5:12 AM
Commercial Bankruptcy Attorney serving Davie, FL
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Law Office of Jeffrey Solomon
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Contracts often say that a party cannot file bankruptcy. This provision in an agreement is not valid and cannot be enforced.
Answered on Feb 07th, 2014 at 5:11 AM
Yes, the payday contract can say it. No, they can't enforce it. The debt can be discharged in bankruptcy. You can say whatever you want to say in a contract. Whether or not it can be enforced legally is a different issue all together.
Answered on Feb 07th, 2014 at 5:10 AM
Bankruptcy Attorney serving Bloomfield Hills, MI
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Bredow Law PLC
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Your relative may file bankruptcy, they are not wasting their time. Under bankruptcy law, any agreement that prohibits bankruptcy is not enforceable. However, if the borrower goes to the payday loan office on Monday, borrows money and files bankruptcy Monday afternoon, the creditor may have grounds to ask the Bankruptcy Court for a determination that that debt is not discharged.
Answered on Feb 07th, 2014 at 5:10 AM