Payday Loans Often Lead to Bankruptcy

Payday loans, also called cash advance loans, are considered by some in the finance industry to be the scourge of America.  Getting involved with payday loans can put some consumers on the quick route to bankruptcy.   Individuals who are facing a financial crunch are bombarded with advertisements on TV and radio and a plethora of stores, generally bunched into certain neighborhoods due to restrictions by some municipalities, offering them a quick fix for their financial woes.

What could be easier than walking into a cash advance center, writing a check for $350 dated for two weeks from today and walking out with $300 cash in hand?  For the convenience of receiving your cash early, the cash advance center keeps the $50 as a processing fee.  In two weeks, the check will be cashed and your checking account will be debited for $350.  However, it doesn’t usually happen this way.

For someone in a financial bind, when those two weeks is up and the $350 check is cashed, something else sacrifices.  Some payday loan centers will offer clients the ability to push off cashing the check, for an additional price.  It is not unusual to have a $300 loan turn in to $1,000 with late fees, penalties and insufficient fund fees if the check is cashed by the payday loan center.

This is an example of one trip to the cash advance center.  Some consumers will turn to another payday loan store, or a payday loan site on the internet, to borrow funds to cover the initial payday loan.  It is not unusual for some consumers to have multiple payday loans outstanding.  As the penalties begin to build the interest rates can quickly climb to over 500%. 

If a client of a cash advance center mentions a possible bankruptcy to resolve the insurmountable debt created by these payday loans, they are often met with threats of jail time because the consumer was writing bad checks.  In most cases, this will not hold up in court as the postdated check is comparable to a promissory note.  The cash advance center knows that the client doesn’t have the funds.  This is completely different than walking in to your local grocery store and knowingly writing a check that will not clear your checking account. 

If you are considering filing for bankruptcy and have one or more outstanding payday loans, it is important to discuss your options with your bankruptcy attorney.  In this day of a check and go center in even small town America, most bankruptcy attorneys will have experience with discharging payday loan debt.