What can happen to me if I defaulted on a payday loan?

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What can happen to me if I defaulted on a payday loan?

Stopped paying in 2008. I have a person calling me from an “arbitration office” saying that if I do not pay today they will serve me with papers to go to court to be sued for theft by check and fraud to a company. He says that I will possibly serve a year in jail. I explained that I do not have a job and he says he is just trying to help me stay out of court. He says if he doesn’t hear from me or my attorney today it will go to court. What can I do?

Asked on August 18, 2010 under Bankruptcy Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

The good news is that as long as you did not commit fraud in taking out the loan (for example, you did not take it out intending all along to not pay it, or using false information), you won't go to jail. People do not go to jail in the United States for falling on hard times. If someone is threatening you with jail, they themselves might face liability for doing so, especially if that person is from a collections agency. (Look up the Fair Debt Collections Practices Act, or FDCPA, to see what collections agents can and can't do.)

The bad news is, you can be sued. If you are sued and lose, then potentially you could have lien put on property or some of your assets--like money in a bank account--could be seized for the creditor. Your credit will also suffer heavily from a default.

You may need to consider bankruptcy as an option. Bankruptcy will also hurt your credit, but will get you out from under the debt. You should meet with a bankruptcy attorney (many will provide a free initial consultation) to see if this is a good option for you.


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