- Deferred deposit loans can pay for unexpected expenses.Comstock/Comstock/Getty Images
Deferred deposits, better known as payday loans, are short-term loans used in emergency situations such as unexpected medical expenses or past-due utility bills. Payday loans rarely exceed $500. Payday lenders charge high interest rates because those seeking payday loans typically cannot obtain credit from other lenders due to negative credit histories. Payday lenders do not run a credit check. In fact, the minimum requirements typically include steady income and a valid checking account. - Unsecured creditors often leave bankruptcy court with nothing.Hemera Technologies/PhotoObjects.net/Getty Images
A deferred deposit is an unsecured debt. An unsecured debt is any debt that doesn't allow the creditor to sell the debtor's property to obtain repayment. Deferred deposit lenders loan money based on the debtor's promise to repay the loan on the debtor's payday. The debtor writes the lender post-dated checks and authorizes the lender to cash the checks on the debtor's payday. If the debtor loses his job or closes his account, the lender will not get paid as agreed. - A debtor who qualifies for Chapter 7 bankruptcy can discharge the entire amount due under the deferred deposit agreement. Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows debtors to walk away from all nonpriority unsecured debt. In a Chapter 7 case, the bankruptcy trustee sells all the debtor's nonexempt assets and uses the proceeds to pay unsecured creditors. If the debtor does not have any nonexempt assets, unsecured creditors receive nothing. Unless the debtor used fraud to obtain the loan, debt arising from deferred deposits constitutes nonpriority unsecured debt. Accordingly, a Chapter 7 debtor will have no obligation to a deferred deposit lender following the close of the debtor's case.
- Debtors with deferred deposit debt who do not qualify for Chapter 7 or who do not want to give up their nonexempt assets may choose to file a Chapter 13. A Chapter 13 allows the debtor to get caught up on his arrearages while maintaining possession of all his property. In some Chapter 13 cases, a debtor with deferred deposit debt can pay the obligation back as part of an installment payment plan lasting three to five years. The amount the debtor has to pay back often depends on the amount the unsecured creditor would have recovered in a chapter 7 bankruptcy.
- Dishonesty can stand in the way of bankruptcy discharge.NA/PhotoObjects.net/Getty Images
Bankruptcy will not help someone who used fraud to obtain a deferred deposit loan. Debts arising from fraud obtain priority status in bankruptcy. Priority debts are nondischargeable debts falling within the same protections as student loans, child support and taxes. If the creditor can prove the debtor lied about his job or took out a loan knowing he was going to close his checking account prior to the loan's due date, then the bankruptcy court will likely refuse to allow a bankruptcy discharge.
