The Illinois governor recently signed legislation to cap interest rates on payday loans, auto title loans, and installment loans at 36%. Although some worry that caps will reduce access to credit for borrowers, many more believe the new rate cap will rein in high cost lending that lands individuals and families in a debt spiral. Advocates for the measure believe the 36% rate cap strikes a balance between access to credit while protecting consumers from predatory lending.
To understand how payday loans work, the era of post dated checks come to mind where an individual issued a check with a future date when they were sure they had money in the bank to cover it. The payday loan industry operates in much the same way, but charges high interest rates until the funds are paid back in full.
For many, payday loans often provide a needed bridge between paychecks, but unfortunately do more damage that good in a majority of cases because all too often people fall desperately behind on these high interest loans, falling deeper into debt, some even forfeiting collateral they offered against the loan they can hardly afford to lose.
Several states including Illinois are acting to limit payday loan interest rates to protect consumers who were paying an average of over 400% interest on loans in some states. However, for many who have taken payday loans, including the tripling of workers taking out payday loans since the pandemic, the legislation comes too late. Many are strapped with high interest loans they cannot pay back.
Payday Loans and Bankruptcy
In a chapter 7 or 13 bankruptcy debtors are often able to wipe out or reduce debt including payday loans, but there are some caveats to consider. If someone takes out a payday loan 70 to 90 days prior to filing bankruptcy, the creditor might challenge their ability to wipe out the debt based on fraud even if at the time, they fully intended to pay it back. Even so, payday lenders are not always successful as the courts do not look favorably upon payday lending practices. The burden would be on the lender to prove a debtor acted with fraudulent intent, which so often is not the case when people fall behind.
Contact a Peoria Bankruptcy Attorney for Help
If you have questions regarding dischargeable debt in a Chapter 7 or Chapter 13 bankruptcy, It is important to speak with an experienced bankruptcy attorney to see if bankruptcy protection is a good strategy for you and your family. Call attorney Charles E. Covey at 309-674-8125 or contact him online for a free consultation.