Does bankruptcy cover payday loans?


For people who have exhausted all other debt relief options, bankruptcy is the final resort.

In 12 months you can be debt free and ready to start again financially, provided you work closely with your official receiver and adhere to all of the restrictions placed upon you during this period. It does, however, have a costly impact on your finances and personal situation, so this is something to keep in mind before filling in the application form.

Many people taking on bankruptcy wonder what debts can be included – here we’ve considered payday loans in particular:

Can payday loans be included in bankruptcy?

Yes, you can include payday loans in your bankruptcy. In fact, most debts can be included – here is a quick list of which ones you can include:

  •   Payday loans
  •   Utility bill arrears
  •   Credit cards
  •   Store cards
  •   Catalogues
  •   Overdrafts
  •   Personal loans
  •   CCJs (County Court Judgments)
  •   Guarantor loans
  •   Benefits overpayments
  •   Council tax arrears
  •   HMRC debts

Essentially, most unsecured debts can be included in a bankruptcy application.

Does it matter how much you owe on your payday loan?

No, unsecured debts of any size should be included in your bankruptcy.

Can you take on a payday loan while going through bankruptcy?

We strongly recommend you do not take on any further credit while you are waiting to be discharged from bankruptcy but, yes, you can take on a payday loan providing you tell the lender that you are bankrupt if you wish to borrow more than £500 and the payday loan company agrees to lend to you.

However, it’s unlikely you will be able to make repayments on a new loan because any disposable income you have while going through bankruptcy will be taken into account in an IPA (Income Payment Arrangement). If you start to struggle, note that any new loans taken on after you were declared bankrupt cannot be added to your bankruptcy.

Remember though, debts of £500 or more cannot be taken on while you are going through the bankruptcy process without telling the lender about your situation. Failure to do this is a criminal offence and you could be fined or sent to prison.

It is best to wait until you have been discharged and your credit rating has had a chance to recover before you borrow any more money. If you are struggling financially, we recommend speaking to one of our experts, who can offer free and impartial advice on your situation. Their details can be found at the end of this guide.

Why are payday loans such an issue in the UK?

Many people find that they fall into financial trouble after taking on one of these loan types, simply because the interest on top of the amount borrowed makes repayment unmanageable. Then, if you struggle to clear the new higher debt once payday comes around, it can roll over into the next month and so on. A small amount can lead to a much bigger debt.

Restrictions have been placed on payday loan providers and investigations into their practices have occurred, but many still offer loans with very large interest rates attached. They are considered a quick fix and so lenders understand that people will apply if they can supply the money needed quickly.

If you are struggling to repay a payday loan, speak to a member of our team here at PayPlan who can point you in the right direction and offer free, impartial advice. Give them a call on 0800 316 1833or use our contact form to fill in your details and receive a call back.