Using Bankruptcy to Break the Cycle of Payday Loans

Using Bankruptcy to Break the Cycle of Payday Loans

| Apr 7, 2014 | Bankruptcy |

bankruptcy filing
A recent article in the Washington Post, “The Trap of Payday Loans” (March 26, 2014) highlights the very serious problems that consumers face with payday loans. Although payday loans may fill a very important need for people in a financial bind, they can also lead to exploitation. The high interest rates on these loans charge may have people choosing to either pay the loan or pay the electric cut-off bill and keep my family warm or cool, do I pay the car insurance to keep from driving illegally or the payday loan? How am I going to pay the loan with no income since I have been sick and out of work this past week? The people were able to get these payday loans very quickly. No credit needed. They just needed to verify that they were employed and had a checking account. These lenders pray on people in severe financial straits. The lenders advertise that people can borrow the $200 they need right now to keep your electric on for only a small fee.

Sounds good at first, maybe even a miracle. But the devil is in the details: the interest rates are frequently in the triple digits. And because the payday lenders do not take into account the borrower’s ability (or lack thereof) of repaying the loan, most consumers end up in an endless cycle of having to take out one payday loan to pay off their prior payday loan. Once this cycle starts, it can seem impossible to break. Especially because the payday lenders are taking the payments directly out of the borrowers’ checking account. If the borrower falls behind, my clients who have taken out payday loans, advise me that they get telephone calls day and night from the lender demanding payment and some even threaten to criminally prosecute them which is a violation of consumer protection laws.

If you find yourself unable to break out of the cycle of payday loans, despite your best efforts, filing for bankruptcy can be a powerful solution. As soon as you file for bankruptcy, the automatic withdrawals and all telephone calls to collect the debt must stop under the automatic stay provision of the Bankruptcy Code. In addition, the amounts you owe the payday lenders can be fully discharged in bankruptcy. Filing for bankruptcy can also discharge past due utility bills, rent due from current and prior leases, as well as stopping repossessions and evictions under certain circumstances.

If you are caught in an endless cycle of payday loans and are struggling to break , please call us for a consultation. The attorneys at the law firm of Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Please call us for a consultation today. Laura Margulies is a principal and Fred Nix is an associate in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at https://www.law-margulies.com.