P is for Payday Loans in the Bankruptcy Alphabet. I love it when clients tell me that they have payday loans. Why? Because bankruptcy is a great tool with which to fight back against these lenders.

Recently, Pennsylvania legislators chose not to permit payday loans in Pennsylvania. However, folks in Pennsylvania can still go to the Internet to enter into a payday loan. A note to readers: a payday loan is a short-term, usually small (approximately $200 to $700) loan that is meant to be an advance on one’s pay. Hence the name, payday loan. The problem all boils down to interest rates, and that’s exactly why payday loans are such cash cows for the banking industry. I was shocked to read a payday loan contract that spelled out 750 per cent interest! (No, that’s not a typo).

Payday loan debt collectors are among the fiercest and most deceptive of all collection agents. Because they have access to your bank account, payday loan companies generally won’t go away until they drain your account. And that’s when the harassing collection phone calls start. The collectors will threaten criminal prosecution on the grounds that the client has committed bank fraud (sorry, but I’ve never seen these types of fraud cases). They’ll also state that “bankruptcy doesn’t wipe out payday loans”.

This is when you’ve got to stand your ground and remember that you’ll be fully protected under bankruptcy laws. Yes, certain debts are exempt from a bankruptcy discharge (wipe out), such as student loans, child support and alimony, most income taxes, among others. But payday loans aren’t in that list, and payday loans can definitely be wiped out with bankruptcy.

Three final tips:

1) Keep good records! Write down the names of all payday lenders and help your attorney in finding their address. Your attorney has to list all creditors on your bankruptcy schedules in order for them to be notified. Most payday lenders on the Internet don’t list their addresses, so sometimes this is a challenge;

2) Keep a Phone Log of all of the phone calls from your debt collectors. You can fight back using the Fair Debt Collections Practices Act if a payday loan debt collector uses abusive or threatening language to you. You can actually get money damages in a lawsuit against them, and

3) Stay cool when you’re on the phone and keep good notes. This can be helpful in turning the tables against the debt collectors!

If you have more questions, please let me know or call my office to discuss your case.

Here’s more from the Bankruptcy Alphabet!