At BMG Money, we have blogged extensively about the difference between a payday loan, and a traditional short-term (or emergency) loan. When stuck in the cycle of payday loan borrowing, repayment often becomes impossible for customers – but what happens if you absolutely can’t pay back a payday loan? There are a number of negative consequences that can come about as a result of payday loan borrowing. First, you may start to get calls from collection agencies all day long. You may also get your wages garnished (depending on the state you live in and their credit laws), or be forced to appear in court. You may only owe a small amount, but lenders can aggressively pursue you if you do not pay the loan back.
The good news is that you have options. You may be able to settle the debt for much less than what you owe. You may also be able to file for bankruptcy.
Here is What You Can Expect
Bank Account Withdrawals and Calls From Collection Agencies
Lenders do not waste time pursuing you when the payment is due. If you gave the lender your bank account information, then they can withdraw the payments from your account. Your bank account can overdraw, and you can be charged a fee for every transaction.
Lenders will also get in touch with you via letter or phone call. They may also get in touch with your family members and friends. Federal law prohibits lenders from detailing the specifics of your debt situation to anyone, but most will identify themselves – causing tension among those who have also received calls.
You Can’t Go to Jail
Defaulting on a loan is not a criminal offense. It is illegal for a lender to threaten jail time if you do not pay. However, some lenders have used bad check laws in order to file criminal complaints against people. If you have been threatened with jail time, then you will need to visit the attorney general office’s in your area.
Time to Negotiate
Lenders would rather collect the money from you instead of selling it to a collection agency. You may be able to settle the debt for less than half of what you owe. If your lender agrees to a settlement, then you will need to get this in writing.
The Court Summons
Contrary to popular belief, a collection agency can sue you even if the amount is small. Michael Bovee is the president of the Consumer Recovery Network. He says that most lawsuits are for small amounts. Lenders typically win because the consumers do not go to court. The next step is having your wages garnished, levies placed on your bank account and liens put on your property.
You do not want to ignore a lawsuit. You should go to court and ask for proof of the amount owed. Seventy percent of lawsuits are dismissed due to a lack of proof.
You should make sure that your basic needs are taken care of first. Do not neglect buying groceries or paying rent to pay your payday loan. You can also talk to a legal aid center, credit counselor or a bankruptcy attorney. You do not want to file for bankruptcy if you just have one debt. However, if you have multiple debts that take up half of your income, then you may want to consider it.
We advise borrowers to look at their options carefully before taking out this type of loan, and always begin the borrowing process with a realistic plan for repayment. At BMG Money, we work with your employers to create a repayment structure that works directly within your payroll system – so our customers are not left in these dire situations. Visit our FAQ page to learn more about the structure of a BMG loan, and how it differs from payday lending.