A recent bankruptcy court decision from the Central District of Illinois has highlighted once again that payday loans are generally dischargeable in bankruptcy, defeating a lender’s argument. Under section 523(a)(2) of the Bankruptcy Code, in order for a debt to be presumed nondischargeable it must be (1) a debt arising from a cash advance aggregating more than $925 within 70 days before the bankruptcy case is filed, and (2) it must be also an extension of consumer credit under an open end credit plan. The Truth In Lending Act (“TILA”) actually defines what an open end credit plan is and it does not specifically refer to “payday loans” as being open end credit plans. Generally, open end consumer credit loans involve a revolving credit line like under a credit card. Payday loans are different in that they have fixed payment dates (they are “closed end,” not “open end”).
The lender in the Illinois case, AmeriCash, asserted that their loans were different because the loans were not given in exchange for a post-dated check (which is how most payday loans work). But later, after the bankruptcy court forced the parties to actually research and brief the issues, AmeriCash’s attorneys backed off and conceded that the loans were not open end credit plans under TILA, and therefore, not entitled to the presumption of nondischargeability under section 523(a)(2).
Attorneys filing bankruptcy cases can now point once again to a solid court decision in AmeriCash v. Marquardt that payday loans are dischargeable generally.