Is it illegal to take out a payday loan if in process of a Chapter 7 bankruptcy but not filed with court yet?

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Is it illegal to take out a payday loan if in process of a Chapter 7 bankruptcy but not filed with court yet?

Asked on October 10, 2012 under Bankruptcy Law, Missouri

Answers:

B.H.F., Member, Texas State Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

It's not per se illegal-- but it's not recommended either--- because it could lead to problems in your bankruptcy.  If you took out a loan knowing that you were going to file for bankruptcy and then include that loan in your bankruptcy, it looks like you induced someone to loan you money when you never really had an intention of paying the funds back in full.  This could cause issues with your bankruptcy, and depending on your local law enforcement scene, it could be viewed as theft by fraud.  Talk to your bankruptcy attorney before you get this loan.  As a side note, the fact that it's a payday loan is also concerning.  Payday loan companies tend to charge higher rates of interest than normal debtors.  So, if you must take out a loan, consider a note with a reputable company.... but talk to your bankruptcy attorney about the timing of the filing of your bankruptcy to avoid any negative consequences--civil or criminal.


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