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What happens when you can’t Repay a Payday Loan?

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What Happens When You Can’t Pay back a payday loan?

Failure to pay a payday loan can drain your bank account and result in collections calls. Try to settle the debt if you can.

By Liz Weston, CFP(r) Senior Writer | Personal finance, credit scores, economics Liz Weston, CFP(r) is a personal finance columnist, host of”Smart Money” podcast, co-host of “Smart money” podcast Award-winning journalist and creator of five novels on finances, which includes the best-selling “Your Credit Score.” Liz has been on numerous national television and radio programs, including”Dr. Phil, “Today” show “NBC Nightly News,” The “Dr. Phil” show and “All All Things Considered.” Her columns are distributed by The Associated Press and appear in a variety of media outlets each week. Prior to joining NerdWallet she was a writer columns for MSN, Reuters, AARP The Magazine and the Los Angeles Times. She shares a home in Los Angeles with a husband along with a daughter and a golden retriever that is co-dependent.

as well as Amrita Jayakumar Writer The Washington Post Amrita Jayakumar is a former special assignments journalist for NerdWallet. She also wrote a syndicated column on the financial situation of millennials, and wrote about personal loans and consumer credit as well as debt. Prior to that, she was a reporter for The Washington Post. Her work was published within the Miami Herald and USAToday. Amrita holds a master’s degree in journalism from the University ofMissouri.

Mar 24 2021

Written by Kim Lowe Lead Assigning Editor The consumer lending Kim Lowe leads the personal loans editorial team. She joined NerdWallet in the last 15 years, after of managing the content of MSN.com, including food, health and travel. Her first job was as a writer for publications covering mortgages as well as the restaurant, supermarket and mortgage industries. Kim obtained a bachelor’s degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington.

A majority of the items featured on this page are provided by our partners who pay us. This influences which products we feature and the location and manner in which the product is featured on the page. However, this does not affect our assessments. Our opinions are our own. Here’s a list and .

An payday loan default can lead to bank overdraft charges and collections calls, the loss of your credit score and a court appearance and garnishment of your wages.

Don’t think it can’t happen since you only borrowed $300.

“If you’re in possession of an effective, binding, legal agreement to pay that debt and you’re located in a state where they can sue you and attach your wages and other assets, you’re playing a game of chicken that you’re going to lose,” says Bruce McClary who is the spokeswoman for the National Foundation for Credit Counseling.

If you’re unable to repay a , you could pay off the debt in less than you owe or file for bankruptcy if your debts are excessive. Here’s what you can expect.

Bank withdrawals, collection calls and collections

Payday lenders don’t waste time once the amount you owe is due.

They’ll take the funds from your account if you’ve allowed them access in your loan agreement. If the debits don’t occur, they could divide the charge into smaller pieces in an attempt to extract whatever money is in your account.

Every failed attempt could result in a bank fee against you. Failure to succeed could result in the loss of your bank account and result in other transactions being bounced, also resulting in fees.

In the meantime lenders begin to call to send letters from lawyers and contacting the relatives or friends you used as references to get the loan. Under federal law, lenders are able to only seek help locating you — they can’t reveal where they’re calling from, unless asked or explain your debt situation to anyone.

Free debt-fighting tools to help you tackle your debt

NerdWallet can help you keep track of your upcoming payments and helps you know the breakdown of your debt.

Jail time? Yes, however, threats are common

Failure to repay the loan is not a crime act. In fact, it’s illegal for lenders to threaten the borrower with arrest or jail. Nonetheless, some payday lenders have been successful in using bad check laws to bring criminal cases against borrowers, with judges erroneously rubber-stamping the complaints.

The Consumer Financial Protection Bureau advises anyone who is threatened with arrest for nonpayment to contact his or his or . It is not a good idea to refuse to comply with an order to appear in court, even if the criminal complaint was incorrectly filed.

The chance to bargain

A lender would prefer to take cash directly from you, rather than sell your debt to an outside collections agency. Third-party debt collectors may offer just a few pennies on the dollar to purchase your debt. If you can, start with offering 50% of what you owe to pay off the debt.

“Tell the lender: “Look I’m unable to pay you, and I’m thinking of filing for bankruptcy”” says John Ulzheimer, a credit expert who has worked for the credit scoring firm FICO and credit bureau Equifax. “The the moment you begin to use the BK phrase, people start getting serious because BK means they get nothing.”

Get any agreement in writing, and make sure that it states that the debt will be eliminated to zero. In terms of the law the debt should be “exhausted.”

If you don’t settle, make sure you are aware of how to handle collection agencies and what methods are considered to be illegal. For instance, collections agents cannot call you incessantly or make false or misleading statements or threats about the amount you owe.

>> MORE:

The summons to court

If you believe that collection agencies don’t have the time to sue for small sums, think again.

The majority of lawsuits filed against consumers today are for small sums according to Michael Bovee, president of Consumer Recovery Network, a debt settlement company.

The lenders usually win because consumers don’t show up to court, as per an analysis for 2020 from the Pew Charitable Trusts. The judge is then able to enter a default judgment, and the court will then begin to collect the amount that you owe the collection agency.

“Depending on the law of your state, you are exposed to property liens, bank account levies, and even garnishments on wages,” Bovee says.

You should never avoid a lawsuit, according to Lauren Saunders, associate director of the National Consumer Law Center.

“Show up in court and request for proof that you owe them the money, since they frequently are not able to prove it,” Saunders says.

Other alternatives if you’re unable to pay for a payday loan

Paying the payday lender over making sure you have food on the table or paying the rental, Saunders says.

Cover basic needs first:

You may be eligible for assistance in the form of utilities, rent or food.

Ask a nonprofit , bankruptcy attorney or legal aid center regarding the next steps you’ll take.

Look for that don’t involve the taking of more debt.

The best option is to not file more than one small amount of debt However, you might want to consider it if your unsecured debts include payday loans, credit cards and medical expenses make up more than half of your income.

Don’t delay and hope the debt will go away — it will not. “Time never makes debt go away,” Ulzheimer says. “Bankruptcy does.”

The authors’ bios: Liz Weston is a columnist at NerdWallet. She is a certified financial planner and author of five books on money including “Your Credit Score.”

Amrita Jayakumar was an ex-writer for NerdWallet. She has previously worked for The Washington Post and the Miami Herald.

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