Alabama Bankruptcy Blog

I have been using a Payday Loan company or Check Cashing store and can no longer pay the fee and I know the check(s) will bounce. Can I file bankruptcy on payday loans or check cashing loans? Can I be charged with a crime or go to jail?

I continue to see more and more clients come in to see me about bankruptcy after being caught up in the payday loan or check cashing trap.  It’s an easy lure – quick easy money with no credit check.  It is easy for consumers to rationalize that they can pay the money back out of their next paycheck and be caught up.  However, far too often the next paycheck is “already spent” as well and you have to “renew” the loan and pay the fee.

 

The cycle of renewing these loans becomes extremely draining on a person’s finances which were assumedly already teetering on the edge.  All it takes is one look at the interest rate on these types of loans to see why.  The average “fees” paid on these loans amount to normally between 400% to 720% annual interest rate.  The cycle also often leads to obtaining these loans at multiple companies in an effort to “borrow from Peter to pay Paul.”  The FTC has issued a Consumer Alert regarding these loans Payday Loans Equal Very Costly Cash.

 

You can file bankruptcy on payday and check cashing loans and these loans are dischargeable.  Do not let these companies convince you otherwise.  I have had clients who have been told “You cannot file bankruptcy because you signed a form saying you wouldn’t.”  This is NOT true (wouldn’t every lender do this if it was). 

 

In addition I have had clients who have been told they would be charged with a crime for writing a bad check.  This again is NOT true.  The crime of writing a bad check is a form of fraud, i.e. saying you have enough money in the bank to cover the check at the time of writing it.  This fraud has to be relied on by the person receiving the check.  In the payday and check cashing loan situation, these companies know the check is not good at the time they accept it; therefore, there is no fraud and there is no crime.

 

Do not let these predatory loans continue to financially and mentally drain you.  Obtaining these types of loans is often a sign of other debt problems as well.  Make an appointment with an experienced and knowledgeable bankruptcy attorney and see about obtaining a fresh start.

 

Richard L. Collins - Attorney at Law practicing extensively in Bankruptcy Law in Alabama - 422 Third Ave SE, Cullman Alabama

A debt collector called me and said “We will garnish your next paycheck.” Can they do this?

      I am continuously amazed at the depths some collectors will go to in order to scare unwary debtors into making payments they cannot afford at the time.  The statement “We will garnish your next paycheck” is probably a lie. 

     In Alabama in order for a creditor to obtain a writ of garnishment against your employer to withhold money from your paycheck, that creditor must have a judgment against you.  In order to have a judgment against you, that creditor must have filed a lawsuit against you and won either after a trial or by default, that is, because you did not file a response.

     Normally when this threat is being made, a lawsuit has yet to be filed.  How do you know if you have been sued?  First, if suit has been filed against you, you should have been served with a Summons and Complaint by either the sheriff’s department of your county or by certified mail.  However, if you cannot be found by the creditor, the creditor may have you served by publication, that is, by running a notice in the newspaper in the county of your last known address.  If you are still unsure, you may call the clerk of court of your county.

What if I have been sued?  See a lawyer immediately.  Depending on which court, Small Claims/District or Circuit, you have either 14 or 30 days respectively from the day you were served to file an answer.  Filing an answer generally denying the allegations in the lawsuit will prevent the creditor from obtaining a default judgment against you and will lead to your case being set for court after a few months.  This will give you time to save money and/or get your bankruptcy filed.

What if I already have a judgment and/or garnishment against me?  If you already have a judgment and/or garnishment against you, I would again suggest you see an attorney immediately.  You may be able to have the judgment set aside or appealed, but only if you act very quickly.  This may also be a good time to take a strong and hard look at bankruptcy.  With a bankruptcy you should be able to discharge the judgment prior to garnishment and stop any garnishment that is already in place.  Upon filing a bankruptcy, you may even be able to have a portion of any money garnished from your check returned to you.

The bottom line is do not let calls from creditors or debt collectors scare you into giving them money you cannot afford to give them.  Many will say anything they think will frighten you.  If a debt collector says anything that worries you, make an appointment with an attorney and see what your rights are.  It’s probably a good time to take a look at your financial situation anyway.

Please email me with any questions regarding the topic of garnisments or any other bankruptcy or debt related topic.

Do I need to file bankruptcy?

Filing for bankruptcy is a heart wrenching decision.  On the one hand you want to do what you promised your creditors you would do, but on the other hand you have to house, feed, and clothe your family and yourself.  There is no question that bankruptcy should be the last resort, but as to whether you should file or not, my classic lawyer answer is “It depends.”

First, we need to look at why you are considering filing bankruptcy.  The most common reasons are the following:

• Are you behind on payments on your house and/or car and being threatened with foreclosure and/or repossession?
• Are you using credit cards frequently to supplement your income with cash advances or purchases of necessities such as groceries and payments of utility bills?
• Has your house been foreclosed on or have you had a vehicle repossessed?
• Do you have more than one credit card maxed out or nearly maxed out?
• Do you have more than $10,000 of debt with credit card companies and/or finance companies?
• Have you frequently been using payday loans and/or check cashing lenders to make it through the next week or two?
• Have you been sued by a creditor and/or are you currently or soon to be garnished?
• Are you getting numerous calls and letters daily from creditors or collection agencies?
• Are you borrowing from one lender to make the payment to another lender, i.e., are your robbing Peter to pay Paul?
• Have you had your license suspended for causing an auto accident where you were not insured?
• Do you have large outstanding medical bills that insurance did not pay and you cannot negotiate a payment you can afford?

If your answer to any of these questions is “Yes”, then it may be a good time to see a bankruptcy attorney.  This does not necessarily mean you should file bankruptcy, but it does mean you may need some legal advice.  The attorney may suggest some of the following alternatives to bankruptcy:

• Tightening your budget.
• Downsizing homes and vehicles.
• Looking at consolidation loans (and then destroying all credit cards)
• Getting a second part-time job for more income
• Having a stay at home spouse or of age child obtain employment.
• Temporarily getting financial assistance from family or friends.
• Negotiating with creditors.
• Doing nothing.

If any of these alternatives allow the possibility of a LONG TERM solution, then they should be greatly considered even though it may call for tough decisions and hard work.  Why?  Although bankruptcy can be a “quick fix”, it comes with some serious long term consequences to your financial future.

The bottom line is I and many other bankruptcy attorneys offer free initial consultations, so it will not cost you anything to see what your options are.  If after talking to an attorney, you think you can dig yourself out of the hole you are in without bankruptcy then definitely try that.  But, if it does not work out you will be prepared and should have a plan.

If you have further questions regarding this or other bankruptcy, debt, or budgeting questions please email me.

What does a bankruptcy do?

Here is a brief overview of a bankruptcy.

There may come a point in a person's life, whether its due to health problems, spending problems, employments problems, etc., where a person owes more money than even the tightest budget will allow him to pay.  When this happens and monthly payments begin to be missed, the people and businesses who are owed the money (the creditors) start calling and sending letters.  Eventually, if the creditors are not satisfied, there are foreclosures and repossessions of vehicles and/or lawsuits getting filed which will then lead to judgments, garnishments and liens.

A bankruptcy can stop most of these bad things from happening.  A bankruptcy can immediately stop the phone calls, letters, lawsuits, garnishments, foreclosures, and repossessions.  This is called the Automatic Stay and it "stays" all collection efforts.  A Chapter 7 bankruptcy will wipe out almost all unsecured debt, like credit cards and medical bills.  Most of the time under a Chapter 7 you will be able to keep your house and vehicles if you are current or almost current on those payments and continue to make your payments to those creditors as agreed to in your contract.

A Chapter 13 allows you to create a plan to pay some or all your debt back to the creditors.  A Chapter 13 can stop your house from being foreclosed on or your car from being repossessed by allowing you to pay back your arrearage over time.  It will also protect a house or vehicle in which you may have too much equity under the State of Alabama's exemption laws.  Alabama's exemptions are very low, so this comes in handy frequently.  The amount you pay back is based on your income and expenses and the amount of debt you need or want to pay back over the length of the plan.  Most plans last for five (5) years which is the maximum length of the plan.

So, the bottom line is a bankruptcy can stop collections of debt by creditors, wipe out all or part of your debt, and/or create a plan to pay back some or all of your debt while normally letting you keep the real and personal property you want to keep.

It is not all rosy though.  There are issues that can make filing bankruptcy very tough.  Bankruptcy also has long term effects on your credit.  I will deal with these issues in later posts.