Buy Now, Pay Later and Bankruptcy: What Consumers Should Know

Buy Now, Pay Later and Bankruptcy

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Consumers looking to buy everything from airline tickets to trendy jeans to the latest Apple products have likely seen the option to finance their purchase over time using Buy Now, Pay Later. Popular BNPL companies like Affirm, Afterpay, Zip, PayPal’s ‘Pay in 4’, Klarna, and Sezzle allow consumers to pay off online or in-store purchase over time, usually a few weeks or months.

Is BNPL Really Safer Than Credit Cards?

BNPL seems harmless on the surface and is often framed as a friendlier, more responsible alternative to credit cards. However, this is not always the case. For example, Affirm boasts that it has no late fees but may charge up to 30% APR on larger loans, while Afterpay offers zero-percent interest on every purchase, so long as users never miss a payment. BNPL services also vary in their credit reporting practices with an increasing number reporting missed payments to credit bureaus but a smaller number reporting successful payment history.

Gen Z consumers have been particularly vulnerable to BNPL with both lenders and retailers targeting younger users through TikTok and popular influencers. Furthermore, compared to the average credit card user, BNPL users are more likely to be low-income. And despite the claims by some BNPL firms that their services help people “budget”, missing payments can put users in dire financial straits. In January 2022, 1 in 5 adults who had made a purchase using a BNPL loan service missed a payment on that loan.

Buy Now, Pay Later Loans and Bankruptcy

It is still a somewhat open question how BNBL loans will be treated in bankruptcy. Differences in state laws are also relevant. However, a few things are certain. First, if you purchase an item using BNPL, you own the item. Even if you miss a payment or default on the loan terms you still own the property. This means the property will be listed as an asset in your bankruptcy filing. Second, bankruptcy treats the outstanding balance of your BNPL loan as an executory contract. Consumers may either reject or assume the contract in the bankruptcy filing and whether you get to keep the item depends on local state law. If your state law would require you to give up a BNPL purchase that is important to you, one option is to complete your installment payments before filing.

If you are having trouble paying your BNPL loans or other unsecured debts give an experienced bankruptcy attorney a call. For more information visit our website at: At WM Law, we are here to help.

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Jeffrey L. Wagoner


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