Bankruptcy & Tennessee Payday Loans: How Filing Can Help You Break the Cycle of Debt

Payday loans are one of the most financially draining forms of consumer debt in Tennessee. What starts as a short-term cash solution often becomes a long-term struggle, with sky-high interest rates, automatic drafts, and repeated rollovers that make it nearly impossible to catch up. If you’re overwhelmed by payday lenders and feeling stuck in a cycle of borrowing just to stay afloat, bankruptcy may offer a powerful path to relief.

At Arthur Ray Law Offices, we help individuals across Memphis and West Tennessee understand their options and regain control of their financial lives. If payday loan debt is taking over, you’re not alone—and you do have solutions.

The Problem: Tennessee Payday Loans and the Cycle of Debt

Payday loans in Tennessee are designed to be short-term, high-cost advances. But with interest rates that often exceed 400% APR, many borrowers find themselves:

• Renewing or rolling over loans repeatedly
• Making payments that cover only fees—not principal
• Dealing with aggressive collection tactics
• Facing bank account overdrafts from ACH withdrawals
• Borrowing from one lender to pay another

Under Tennessee law, payday lenders have the right to pursue collections if you fall behind, but that doesn’t mean you’re without protections. Once these loans spiral, it becomes nearly impossible to repay them while covering normal living expenses. That’s where bankruptcy can step in.

How Bankruptcy Helps With Tennessee Payday Loans

Both Chapter 7 and Chapter 13 bankruptcy provide tools that can stop collection activity, eliminate certain debts, and give you a fresh financial start. Payday loans—including outstanding balances, rollover fees, and interest—are typically treated as unsecured debt, similar to credit cards or medical bills.

1. Immediate Protection through the Automatic Stay

As soon as you file bankruptcy, an automatic stay takes effect. This federal protection:

• Stops payday lenders from calling, texting, emailing, or suing you
• Blocks wage garnishments
• Prevents further bank account withdrawals or ACH debits
• Halts collection activity—even if a lender has already turned your account over to a third-party collector

In Tennessee, this stay applies to almost all payday lenders operating in the state.

2. Dischargeability of Payday Loans

In most cases, payday loan debt can be discharged in bankruptcy.

• In Chapter 7, the debt is typically wiped out completely if the lender cannot prove fraud (a rare situation that requires the lender to file a lawsuit).
• In Chapter 13, the debt is rolled into your repayment plan and often paid at a reduced amount—including possibly as little as 0%, depending on your income and other debts.

3. Stopping the Cycle of Renewals and Rollovers

Bankruptcy breaks the cycle of re-borrowing. Once you are protected by the court, lenders cannot require renewals, add fees, or continue automatic drafts.

4. Protecting Your Bank Account and Paycheck

Tennessee payday lenders frequently rely on post-dated checks or automated withdrawals. Filing bankruptcy:

• Invalidates the lender’s right to draft your account
• Prevents bounced check fees and overdrafts
• Stops any attempt to garnish wages

This gives borrowers immediate breathing room.

Chapter 7 vs. Chapter 13 for Payday Loan Relief in Tennessee

Chapter 7 Bankruptcy

Best for individuals with limited income and overwhelming unsecured debt.

• Fast process (typically 4–6 months)
• Payday loans are usually fully discharged
• No repayment required on most unsecured debts

Chapter 13 Bankruptcy

Ideal for those with steady income or who need immediate protection from repossessions, garnishments, or foreclosure.

• Repayment plan lasting 3 to 5 years
• Payday loan balances may be significantly reduced
• Any remaining payday loan debt at the end of the plan is discharged

Both chapters provide strong relief; the right option depends on your financial situation.

Can Payday Lenders Challenge a Bankruptcy?

While Tennessee payday lenders have the right to raise objections, real challenges are extremely rare. They must prove that you committed fraud when obtaining the loan—something that requires evidence and a separate lawsuit. Simply being unable to repay the loan is not fraud.

You Don’t Have to Face Payday Loan Debt Alone

Filing bankruptcy may feel overwhelming, but it is often the most effective way to stop the cycle of payday loans and regain financial peace of mind. Our office has helped countless Tennesseans get relief from high-interest loans, stop collections, and rebuild their financial future.

If payday loans are controlling your life, you deserve to understand your options.

Get Trusted Legal Help Today

If you’re struggling with payday loans anywhere in Tennessee, bankruptcy may provide the fresh start you need. Contact us today for a free, confidential consultation. We’ll review your situation, explain your options, and help you decide whether Chapter 7 or Chapter 13 is the best path forward.

Call Arthur Ray Law Offices at 901-475-8200 or request your free consultation online.

^*For those who qualify under federal law.