Payday loans and bankruptcy: what to know before you file

Bankruptcy is the last move for payday loan debt, not the first, and the timing of your loans matters. Before you file you must take credit counseling from an agency approved by the U.S. Trustee Program, within 6 months before filing. And loans taken shortly before filing can be presumed non-dischargeable, so a bankruptcy attorney will look hard at anything recent.

This guide covers the federal rules we’ve confirmed from the statute. It isn’t legal advice, and your attorney will know how courts in your area treat payday loans.

When bankruptcy is worth a conversation

For most people with one or two payday loans, there are cheaper ways out: a state extended payment plan where your state requires one (check your state), a payday alternative loan at no more than 28% a year, or a nonprofit credit counselor.

Bankruptcy is worth a consultation when payday loans are one piece of a larger pile you can’t repay: credit cards, medical bills, a lawsuit or judgment, and no realistic way to catch up. It’s a serious legal step, and an attorney can tell you whether it would actually help in your case.

The counseling you have to take first

Before you can file, you must complete credit counseling from an agency approved under federal law, within 6 months before filing. After you file, there’s a second required course on debtor education. The FTC covers both in How To Get Out of Debt.

The Department of Justice keeps the list of approved agencies. Use it for this pre-filing counseling. Don’t read it as a recommendation for anything else: the U.S. Trustee Program says it “has not reviewed nor approved” those agencies’ other services, such as debt management plans.

Why loans taken right before filing get a closer look

Federal bankruptcy law, at 11 U.S.C. 523(a)(2), says debts obtained by fraud aren’t wiped out. That includes money obtained through “an extension, renewal, or refinancing of credit” by false pretenses or fraud.

To make that easier to apply, section 523(a)(2)(C) sets two presumptions. If they apply, the debt is presumed non-dischargeable, and it’s up to you to show otherwise.

What	Amount (cases filed on or after April 1, 2025)	Window before the order for relief
Consumer debts to a single creditor for luxury goods or services	More than $900	90 days
Cash advances under an open-end credit plan	More than $1,250	70 days

The dollar amounts were adjusted April 1, 2025 (from $800 and $1,100) and apply to cases filed on or after that date. They’re adjusted every three years; the next adjustment is due April 1, 2028. “Luxury goods or services” doesn’t include things reasonably necessary to support you or your dependents.

The open-end catch

The cash-advance presumption is limited to credit under an open-end credit plan, the kind of revolving credit you draw on repeatedly. Most storefront payday loans are closed-end: one amount, one due date. Whether that 70-day presumption reaches a typical payday loan isn’t something the statute answers, and we haven’t found a court ruling or official source that settles it.

So don’t count on it either way. What’s certain is that a payday loan taken out, or renewed, shortly before you file is something a bankruptcy attorney will want to look at closely. Bring a list of every payday loan with the date you first borrowed, each renewal date, and the amounts.

What to bring to a bankruptcy consultation

• Every payday loan agreement, or the lender name, amount, fees and due dates
• The dates of each renewal
• Bank statements showing what lenders have withdrawn
• Any letters from collectors, and any court papers
• Your other debts, income and monthly expenses

If you can’t afford an attorney, the Legal Services Corporation has a finder for LSC-funded legal aid offices.

Meanwhile, protect your paycheck

While you’re deciding, a lender pulling payments from your account can make everything harder. You can revoke its authorization and place a stop payment with your bank at least 3 business days before the next withdrawal; see how to stop payday loan withdrawals. That doesn’t cancel the debt, but it keeps your money available for rent and food.

If you’re being sued over a payday loan, don’t ignore the papers. See can payday lenders sue you. The full order of moves, with bankruptcy at the end, is in how to get out of payday loans.