If you are considering filing a bankruptcy case, one of your creditors may be a Pay Day Lender. Many people in financial difficulties resort to borrowing money from these lenders who can only be described as loan sharks.
When you file a bankruptcy case, you must list all of your assets and all of your debts. Unsecured debts are discharged giving you what is often called a “fresh start”. Pay Day loans are a form of unsecured debt, and are completely dischargeable in your bankruptcy case.
Pay day lenders will tell customers that they will go to jail if they don’t pay their Pay Day loans. This is not true. Telling someone that they will be prosecuted or go to jail for not paying a Pay Day loan is a lie. To be guilty of writing a worthless check, the person writing the check must have written the check with the intention of defrauding the party receiving the check. Since the Pay Day lender knowingly accepts post dated checks when the Pay Day loan is made, the Pay Day lender knows that the check is not good at the time it receives the check. If the customer had the money, the customer would not need the Pay Day loan…..right?!
However Pay Day loans, while marketed as a loan to be used on a one-time basis, are in reality taken out by people when they are very vulnerable and desperate.
Here are the facts:
- The high interest rates (usually shown as a fee for borrowing the money) make it difficult for borrowers to repay these loans. I personally have seen potential clients come in with fees that equate to interest rates of 475% to 650%.
- Because they are difficult to repay, many consumers end up paying additional “fees” and rolling the loan over. This causes the Pay Day loan to increase dramatically.
- Many consumers end up very much more than the amount that they originally borrowed, putting them into much worse financial shape.
Many Pay Day loans state that their interest rate is 18%. That does not sound horrible, until you consider the term (length) of the Pay Day Loan is usually only two weeks! Since there are 52 weeks in a year, a simple estimate of the annual percentage rate (“APR”) would be at least 26 x 18%-or 468% (not including any late fees or any compounding of interest)!
Say I borrow $300.00 from you (a Pay Day lender) and we agree to a 18% interest rate. Assume further that every two weeks you add a $15 late fee after every missed payment. Now assume I am not able to pay you back in time, but six months after you make me that $300.00 loan, my grandmother dies and I inherit $3,000.00. Surely I now have enough money to pay back that $300.00 loan…..Nope!
Here’s how the debt for that Pay Day loan would be calculated:
- 2 weeks – $300 x 18% = $354 + $15 (late fee) = $369.00
- 1 month – $369 x 18% = $435.42 + $ 15 = $450.42
- 3 months – $793.65 x 18% = $936.51 + $15 = $951.51
- 6 months – $2,710.27 x 18% = $3,198.12 + $15 = $3,213.12
Sounds like a loan shark…..doesn’t it?…..and we have gutted our usury laws and so this is not a usurious loan!
Many payday lenders actually discourage customers to pay on time. Can you now see why? However, the effect is a cycle of debt that is hard to escape leaving many people with no alternative but to file bankruptcy.
It’s easy for those of us who don’t need to resort to Pay Day loans to say “don’t do it.” But the reality is that in this economy many people are desperate for money and so resort to this kind of vicious lending. It’s a matter of getting the Pay Day loan or facing eviction, or perhaps getting a Pay Day loan or losing your car.
Pay Day loans are financial heroin. They result in the borrower being caught in a never ending cycle of debt. If you believe that you have to borrow money from a Pay Day lender because of your debt, this is a sure sign that you are experiencing financial problems. If you are caught in this financial trap, seek advice from a bankruptcy lawyer who can evaluate your entire financial situation.
Bankruptcy may be the right choice for you, especially if you are drowning in Pay Day loans. Bankruptcy is a legal honest way to give you a financial fresh start.
Make sure and tell your bankruptcy lawyer about all of your Pay Day loans so that all of your Pay Day loans can be included and discharged in your bankruptcy case.