How do I handle Payday loans ?
With the increase in the amount of debt that many Americans are carrying related to credit cards, mortgages, and other liabilities, the number of places offering payday loans has skyrocketed. Payday loans, also known as cash advance loans, are short-term loans—usually for one to three weeks—that are designed to allow a person to pay their expenses until their next payday. When you accept the payday loan, you are typically required to provide income and employment information to the lender along with a post-dated check (although it is becoming common for payday loans to be obtained online). The post-dated check would be written to the lender for the amount of the payday loan plus the fees charged by the lender.
Laws Governing a Payday Loan
The laws governing the fees and interest a payday lender may charge for payday loans varies by state. However, where payday loans are allowed, they are typically bad news for consumers, because once you accept a payday loan, it is difficult to ever get out of debt given the typically high fee and interest rates these lenders charge. For example, it is not unusual for the payday lender to charge $15 (or more) for every $100 borrowed; this could mean that for a two-week payday loan of $300 you have to repay $345.
When your payday comes, you are expected to return to the payday lender to repay the payday loan amount plus the fee. If you do not return as agreed to repay the payday loan, the lender will attempt to cash the post-dated check to satisfy the amount owed. If the check bounces, the payday lender will begin charging you interest and start taking other steps to collect the money owed.
Collection methods used by lenders for payday loans include those commonly used by credit card companies and other holders of unsecured debt. These methods can include letters and phone calls to you, filing a lawsuit against you to obtain a judgment, or assigning or selling the debt to a collection agency. Lenders are not legally permitted to contact your employer or your neighbors, nor can they arrest you for failing to repay a payday loan. However, it is not unusual for cash advance lenders to threaten jail time in an attempt to scare the borrower into repaying the loan. But as failing to repay a loan is a civil rather than a criminal issue (assuming you did not take the loan under fraudulent circumstances, such as with the plan of not repaying the payday loan from the start), jail time is simply not a possible punishment.
Top 4 ways to stop payday collections
If you are looking for ways to address the money you owe related to cash advance loans or you want to stop collection efforts, you have several options:
1. Notify the collection agencies to cease collection efforts for the payday loan under Public Law 95-109 Section 805-C.
This law stipulates that if you notify a collection agency in writing to stop contacting you, they are permitted to contact you one final time outlining what steps you need to take and what action they may perform if you do not take those steps. The final action they indicate they will take against you will often be threatening in nature, such as filing a lawsuit against you. What the collection agency and the original lender actually do if you do not repay the loan will depend on the unique circumstances of your situation.
2. Wait for the statute of limitations to expire.
Every state has laws defining how long a lender can collect an unsecured debt, which is known as the statute of limitations. If the lender is unable to collect from you by when this timeframe is reached, the lender will no longer be legally able to collect the money you owe them. If the lender believes you are unable to repay the debt and that you likely will not have the money to do so, they may choose to write off the debt rather than pursue you further through legal action or other means.
3. Negotiate with the payday lender or collection agency.
Payday lenders expect that many of the consumers they loan money to will default on repaying the loan. If you truly do not have enough money to repay the full amount, you can likely negotiate with the lenders or collection agencies to accept less than the full amount you originally owed but still consider the loan repaid. Just be careful that if you enter into such an agreement that it is reviewed by an attorney who is experienced in such matters, to be sure that it is binding against the lender.
4. Declare bankruptcy
Depending on your overall financial situation, declaring either Chapter 7 or Chapter 11 bankruptcy is an option that can eliminate unsecured debt such as payday loans and give you a fresh start. However, bankruptcy has a significant and lasting impact on your credit, so you should consider bankruptcy as a last resort.
Keep in mind that the information about is general in nature. Before you settle on an option for your situation, it is typically a good idea to consult an attorney. An attorney familiar with debt collection issues will be knowledgeable of laws and statutes applicable for your state and can give you specific guidance as to what option is best for your individual situation.
- How to avoid taking out a payday loan (moneyexpert.com)
- Is A Payday Loan the Solution to Your Problem? (choiceofhomes.com)
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