Using Bankruptcy to Break the Cycle of Payday Loans

By Craig Stewart

A recent article in the Washington Post, “The Trap of Payday Loans” highlights the very serious problems that consumers face with payday loans. Payday loans fill a very important need for people in a financial bind, which leads to exploitation–how do I pay the electric cut-off bill to keep my family warm or cool? How do I pay the car insurance to keep from driving illegally? How do I pay the rent after being out a week sick on my hourly job? The quick solution offered to people is to take out a payday loan. No credit needed. Just a job and a checking account, they say. You can borrow the $200 you need to keep your electric on for only a small fee.

Sounds good at first, maybe even a miracle. But the interest rates are frequently in the triple digits. Because the payday lenders do not take into account your 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 your checking account. If you fall behind, the payday lenders harass you to no end, some even threatening criminal prosecution in 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 must stop under the bankruptcy laws. 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 free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Please call us for a free consultation today. Laura Margulies and Craig Stewart are attorneys in the firm with decades of bankruptcy experience. 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 http://www.law-margulies.com.