Can a payday loan contract state bankruptcy cannot be filed? 36 Answers as of February 12, 2014

A relative of mine got in deep with a payday loan place. They have been paying and borrowing from this guy for 5+ years and owe 8,000 right now. They had been planning on filing for bankruptcy on that and some medical bills this year, but then they read through the contract for the loan they have and it states that by signing it, they agree that they will not file bankruptcy. This guy has been randomly pulling money from their account without notifying them ( just took 600 out recently causing their electric, gas, cell phone, and water bill to all bounce) and because of the high interest, they just can't seem to get ahead. Are they trapped? Because of that line in the contract, can they really not file bankruptcy on this loan? Or is it just another way that these places try and scare people into thinking that they have no choice but to pay the loan? I told them that they should still consult with a lawyer about it, will they be wasting their time?

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Indianapolis Bankruptcy Law Office of Eric C. Lewis
Indianapolis Bankruptcy Law Office of Eric C. Lewis | Eric Lewis
A provision saying that it cannot be included in bankruptcy has no validity.
Answer Applies to: Indiana
Replied: 2/12/2014
Joseph Lehn, Esq
Joseph Lehn, Esq | Lehn Law, PA
A payday loan is a dischargeable debt. Tell your relative to contact a bankruptcy attorney and seek the relief they need.
Answer Applies to: Florida
Replied: 2/12/2014
Hayward, Parker, O'Leary & Pinsky, Esqs.
Hayward, Parker, O'Leary & Pinsky, Esqs. | Michael O'Leary
A clause in an agreement that precludes a borrower from filing bankruptcy is void as against public policy and is not enforceable. Your relatives should contact competent bankruptcy counsel and get their petition filed.
Answer Applies to: New York
Replied: 2/11/2014
The Law Office of Darren Aronow, PC
The Law Office of Darren Aronow, PC | Darren Aronow
Then can not stop him from filing bankruptcy by contract. And in NY, most payday loans are illegal anyway which means the contract will not hold up in court.
Answer Applies to: New York
Replied: 2/11/2014
Benson Law Firm
Benson Law Firm | David Benson
They most definitely would not be wasting their time in talking to a qualified bankruptcy attorney. Provisions in payday loan contracts that suggest you can't file bankruptcy are unenforceable. Also, there may be some unlawful collections practices here that should be looked into.
Answer Applies to: Ohio
Replied: 2/10/2014
    Michael B. McFarland, P.A. | Michael B. McFarland
    That contract provision is invalid, and your relative (if otherwise eligible) can file bankruptcy. In Northern Idaho, at least, the prosecuting attorney will not file bad check charges in connection with one of these loans, at least in part because these lenders are inviting - and entrapping- their victims. Consequently, the loan is dischargeable unless there is some collateral. Your relative should contact an experienced bankruptcy attorney for assistance, however.
    Answer Applies to: Idaho
    Replied: 2/10/2014
    Fluhr & Moore, LLC | Steven S. Fluhr
    They can still file bankruptcy. You can not agree by contract to give up your right to file bankruptcy.
    Answer Applies to: Missouri
    Replied: 2/7/2014
    Steele, George, Schofield & Ramos, LLP
    Steele, George, Schofield & Ramos, LLP | Alan E. Ramos
    There is a myth that you can "file" on a specific debt or debts; that is absolutely not true. When you file a bankruptcy petition, it MUST include all debts and all assets. With regard to the contract "prohibition" against filing bankruptcy; it is not enforceable, so it can be ignored.
    Answer Applies to: California
    Replied: 2/7/2014
    Law Office of Michael Johnson
    Law Office of Michael Johnson | Michael Johnson
    No you cant prohibit a person from filing a bankruptcy. They need to change banks and then file a bk.
    Answer Applies to: Florida
    Replied: 2/7/2014
    Philip R. Boardman, Attorney at Law
    Philip R. Boardman, Attorney at Law | Phil Boardman
    Bankruptcy overrules those types of statements. This loan will be discharged.
    Answer Applies to: Virginia
    Replied: 2/7/2014
    Stuart P Gelberg
    Stuart P Gelberg | Stuart P Gelberg
    They can file bkry. Pay day lenders are notorious for their illegal collection activities. However they are mostly off shore and will never come into the courts, they will just threaten with criminal prosecution etc. Ignore them after bkry.
    Answer Applies to: New York
    Replied: 2/7/2014
    Law Office of J. Thomas Black, P.C.
    Law Office of J. Thomas Black, P.C. | J. Thomas Black
    No, as a general rule courts will not enforce provisions in contracts that waive the right to file bankruptcy or waive the consequences of bankruptcy.
    Answer Applies to: Texas
    Replied: 2/7/2014
    Garner Law Office
    Garner Law Office | Daniel Garner
    Although common, such contract language is void because bankruptcy is a constitutional right. However, it is possible for the creditor to object to the discharge of recent loans (within 3 months) on the basis of fraud. Therefore, it is important for your relatives to wean themselves immediately from dependence on these payday loans and not to borrow any more for 90 days before they file bankruptcy. Meanwhile, they can take steps to protect themselves from the automatic withdrawals by closing their account and putting their money in a different bank or credit union. The creditor will harass them but if your relatives retain a lawyer, they can give the creditor the lawyer's contact information and the creditor is supposed to leave them alone, even before the bankruptcy is filed, because of federal and state debt collection laws. All the creditor can do is contact the lawyer to verify representation. If the creditor chooses to sue, they would have to serve the retained lawyer. Most of them won't do that because they know a judgment can be discharged in bankruptcy.
    Answer Applies to: Oregon
    Replied: 2/7/2014
    Faletti Law Office PC | Harold Faletti
    The agreement not to file bankruptcy as a condition of borrowing money is known as an ipso facto clause and it is unenforceable. Only the bankruptcy court can determine which debts are discharged in bankruptcy. The creditor would have to prove that the debt is not discharged under section 523 of the code.
    Answer Applies to: Colorado
    Replied: 2/7/2014
    Stephens Gourley & Bywater | David A. Stephens
    That provision would not be enforceable.
    Answer Applies to: Nevada
    Replied: 2/7/2014
    Graves Law Firm
    Graves Law Firm | Steve Graves
    They can file if they're otherwise eligible. You can't contract away your right to bankruptcy relief.
    Answer Applies to: Texas
    Replied: 2/7/2014
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    File now. That contract provision is invalid.
    Answer Applies to: California
    Replied: 2/7/2014
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    A contract can say anything the parties agree to, but an agreement not to file bankruptcy isn't enforceable. However, if these folks took out a loan knowing that they would be filing bankruptcy, isn't that sort of like robbing the lender by using a pen instead of a gun? Which is why bankruptcy law states that any debt made within 3 months of filing is presumed to have been fraudulently made, and any debt made more than 3 months but less than 6 months may be challenged as being fraudulent. See 11 USC section 523 for more information.
    Answer Applies to: Nevada
    Replied: 2/7/2014
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    Any agreement waiving one's right to file bankruptcy is unenforcible.
    Answer Applies to: Nevada
    Replied: 2/7/2014
    Deborah F Bowinski, Attorney & Counselor at Law | Debby Bowinski
    Your relative should definitely visit with a bankruptcy attorney.
    Answer Applies to: Colorado
    Replied: 2/7/2014
    Tokarska Law Center
    Tokarska Law Center | Kathryn U. Tokarska
    It can state it but it will not be valid. You cannot contract away your right to file bankruptcy.
    Answer Applies to: California
    Replied: 2/7/2014
    GARCIA & GONZALES, P.C.
    GARCIA & GONZALES, P.C. | Richard N. Gonzales
    That language in the contract is VOID; Unenforceable. They can file BK and discharge the obligation.
    Answer Applies to: Colorado
    Replied: 2/7/2014
    Law Offices of Linda Rose Fessler | Linda Fessler
    File the bankruptcy.
    Answer Applies to: California
    Replied: 2/7/2014
    Patrick W. Currin, Attorney at Law | Patrick Currin
    Payday loans are bad news and the fact they exist at all and are exempt from usury laws is as good a testament to the greed and corruption of our lawmakers as any. They are required to be licensed however, and many of the internet payday lenders are not. They are often from overseas and many times do not give their physical address. These would be the most likely to have clauses like this and would be the least likely to appear in court. If the payday loan in question here is in fact from a legit company, the clause in their contract is still invalid. One argument I keep expecting such a lender to make is that their loan should not be discharged since it was made very close to bankruptcy and that the Debtor knew at the time they would be filing and never intended to pay it back. A judge might very well be favorable to this argument, but I have not come across it in my practice. In the case of your relative, the bankruptcy clause in the contract actually works against the lender since your relative could claim they did not think they could file until they had advice of counsel. Also, I suspect it took time to get $8,000 deep. Your relative should consult an experienced bankruptcy attorney to assess eligibility, what assets, if any, may not be exempt, and what debts stand to be discharged.
    Answer Applies to: California
    Replied: 2/7/2014
    Bushhorn Law Offices | Thomas D. Bushhorn, Esq.
    Payday loans can be listed in a bankruptcy. A contract can prevent someone from obtaining a bankruptcy relief.
    Answer Applies to: Indiana
    Replied: 2/7/2014
    Danville Law Group | Scott Jordan
    The clause you site is illegal and unenforceable. Payday loans are almost always dischargeable in bankruptcy.
    Answer Applies to: California
    Replied: 2/7/2014
    Lynch Law Offices, P.C. | Roseanne N. Lynch
    They should consult a lawyer right away. Filing Bankruptcy to protect your assets is a constitutional right. It is just a scare tactic. Your relatives should also close any accounts that this loan company has access to immediately. This type of lender is unscrupulous and they must be very careful in dealing and speaking with this company/person.
    Answer Applies to: Illinois
    Replied: 2/7/2014
    Thomas Vogele & Associates, APC | Thomas A. Vogele
    The right to file bankruptcy is established under federal law and no agreement may suspend or vary that right. The loan agreement your relative signed is clearly unenforceable but the "no bankruptcy filing" language is there to intimidate people from exercising their rights. I would recommend that your relative consult with a bankruptcy attorney and make sure they list all of the pre-petition withdrawals the payday lender took from the account. The attorney might be able to force the payday lender to repay these withdrawals under a preference theory. Good luck and tell your relative and everyone who will listen to you that payday lenders are the most predatory form of lenders out there and to avoid them at all costs.
    Answer Applies to: California
    Replied: 2/7/2014
    Law Office of Mark B. French
    Law Office of Mark B. French | Mark B. French
    A pre-petition (before bankruptcy is filed) provision in an agreement in an agreement of that type is not enforceable. You are correct that it is simply a scare tactic used by the lender. Your relative should consider switching banks so that the lender does not have the ability to remove funds without consent.
    Answer Applies to: Texas
    Replied: 2/7/2014
    DunlapWeaver PLLC
    DunlapWeaver PLLC | David Ludwig
    A contractual provision that says that one party cannot file a bankruptcy is not enforceable. This is because of the "Supremacy Clause" in the US Constitution, which basically says that, where there is a conflict between federal law (the bankruptcy code) and state law (the law of contracts), federal law wins. However, a contract may impair a person's ability to claim certain exemptions in a bankruptcy, which would not stop the bankruptcy but might give that particular creditor a better chance of getting paid in the bankruptcy, and a contract can place a lien on certain assets, which would also impact a bankruptcy. Your relative should therefore be sure to discuss this particular contract with the attorney who is preparing the bankruptcy petition.
    Answer Applies to: Virginia
    Replied: 2/7/2014
    Law Offices of Eric W. I. Anglin
    Law Offices of Eric W. I. Anglin | Eric W. I. Anglin
    That clause is unenforceable under the bankruptcy code and is often inserted to scare borrowers from filing on that debt. There are circumstances for which a payday loan may be a non-dischargeable debt in bankruptcy but those instances are rare but should be discussed with a bankruptcy attorney.
    Answer Applies to: Indiana
    Replied: 2/7/2014
    Law Office of Jeffrey Solomon
    Law Office of Jeffrey Solomon | Jeffrey Solomon
    Contracts often say that a party cannot file bankruptcy. This provision in an agreement is not valid and cannot be enforced.
    Answer Applies to: Florida
    Replied: 2/7/2014
    Meister & McCracken Law Firm, PLLC | Joanne M. McCracken
    They should absolutely consult a lawyer. The contract cannot be enforced because filing for bankruptcy protection is a right that cannot be waived.
    Answer Applies to: Arkansas
    Replied: 2/7/2014
    Westgate Law
    Westgate Law | Justin Harelik
    Yes, the payday contract can say it. No, they can't enforce it. The debt can be discharged in bankruptcy. You can say whatever you want to say in a contract. Whether or not it can be enforced legally is a different issue all together.
    Answer Applies to: California
    Replied: 2/7/2014
    The Schreiber Law Firm
    The Schreiber Law Firm | Jeffrey D. Schreiber
    Have them consult an experienced bankruptcy attorney, as I doubt such a clause would be enforceable.
    Answer Applies to: California
    Replied: 2/7/2014
    Resnick & Moss, P.C.
    Resnick & Moss, P.C. | Mark Bredow
    Your relative may file bankruptcy, they are not wasting their time. Under bankruptcy law, any agreement that prohibits bankruptcy is not enforceable. However, if the borrower goes to the payday loan office on Monday, borrows money and files bankruptcy Monday afternoon, the creditor may have grounds to ask the Bankruptcy Court for a determination that that debt is not discharged.
    Answer Applies to: Michigan
    Replied: 2/7/2014
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