Personal loans and payday loans often feel like the most overwhelming types of debt. Their high interest rates and aggressive collection tactics can quickly trap borrowers in a cycle that feels impossible to escape. If you are considering bankruptcy, you may be wondering whether these debts can be discharged and how filing will affect your financial future.

At Law Office Of Calvin Craig, we assist the Raleigh community in understanding how bankruptcy treats different forms of debt—especially loans that create the most financial pressure.

Are Personal Loans Dischargeable in Bankruptcy?

Yes. In most cases, personal loans are treated as unsecured debts, meaning they are not tied to collateral. Unsecured debts are commonly discharged in Chapter 7 bankruptcy, wiping out your obligation to repay them entirely.

If you file Chapter 13 bankruptcy, personal loans are included in your repayment plan. You may only repay a portion of what you owe over three to five years, and the remaining balance may be discharged when the plan ends.

How Bankruptcy Handles Payday Loans

Payday loans often come with exceptionally high fees and interest rates. Fortunately, bankruptcy provides relief:

Chapter 7 Bankruptcy

Payday loans are generally dischargeable just like other unsecured debts. Once you file, the automatic stay stops lenders from:

• Taking money from your bank account
• Calling or threatening you
• Attempting wage garnishment

However, payday lenders sometimes claim fraud if the loan was taken out shortly before filing. This does not automatically prevent discharge, but it may require additional documentation or testimony.

Chapter 13 Bankruptcy

Payday loans are rolled into your repayment plan. The lender will receive payments based on what your budget allows, which may be far less than the original loan amount.

What If the Payday Lender Has a “Continuous Payment Authorization”?

Many payday lenders require access to your bank account. Once you file bankruptcy, they must stop all withdrawals, and attempting to collect after being notified can violate federal law.

Can I Keep Borrowing Before Filing for Bankruptcy?

It is highly discouraged to take out new loans immediately before filing. Loans taken within a short time frame may trigger lender challenges. Always consult an attorney before making financial moves leading up to a bankruptcy filing.

How Bankruptcy Protects You

Filing for bankruptcy provides immediate and long-term relief:

• Stops all collection actions
• Eliminates qualifying unsecured debts
• Prevents wage garnishment
• Allows you to rebuild your financial foundation

At Law Office Of Calvin Craig, we help Raleigh residents determine the best course of action based on their loan history, income, and long-term goals.