I can't pay back a payday loan, is it fraud? Will I go to Jail?

THIS ARTICLE IS INTENDED ONLY FOR MINNESOTA RESIDENTS.  LAWS VARY STATE TO STATE.  THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE OR CREATE AN ATTORNEY/CLIENT RELATIONSHIP.

I often talk to people who have taken payday loans to help them pay their bills as they come due.  You can keep up this way for a time, but since payday lenders often charge interest rates of up to 782%in Minnesota, it won't work for very long.  A mortgage, as of March, 2013 has an interest rate of about 3.5% as a comparison.  When the borrower inevitably  proves unable to pay the fees and interest for the payday loan, the lender will start making phone calls.  These calls tend to be meaner than other collection calls.  They say things like "we are sending the sheriff out right now to get you."  If you tell them that you can't go to jail for debt they will say: "this is different, you committed check fraud."  The sheriff is not coming to your house, and you have probably not committed check fraud.  This article will explain both of these things below.

WHY THE SHERIFF ISN'T ON HIS WAY TO YOUR HOUSE RIGHT NOW

A payday loan is a debt, you have a civil obligation to repay it.  The lender can enforce this obligation in civil court, but no more.  You can only go to jail from criminal enforcement, not civil enforcement.  The payday lender can go to small claims court and get a civil judgment against you, but this does not allow them to send you to jail.  A civil judgment allows a creditor to collect money by garnishing a percentage of the debtor's wages, or by levying a bank account.  A civil judgment does not allow the creditor to put you in jail.  The person on the phone for the payday lender will try to convince you that you might go to jail, but they are misleading you.

WHY FAILING TO PAY A PAYDAY LOAN ISN'T CHECK FRAUD

Payday lenders will tell you that you committed check fraud because your postdated check bounced, or because there was no money in your account when they tried to do the automatic withdrawal.  Check fraud is potentially criminal, and they will make a big deal of this.  They will say that "you wrote a bad check," when you gave them a post-dated check, or "you committed bank fraud" when you authorized them to take the money electronically.  They may even send you letters that look as if they are from the police.  These are designed to scare you into paying them right away.  They want you to borrow the money from someone else to pay them off.

The truth is, however, that failing to pay a payday loan isn't fraudulent.  In order to show that it is fraudulent, the payday lender must prove that when you took out the loan, you had no intention to pay it back.  They also have to prove that at the moment you took the loan, you knew that the account would be empty when they went to cash your check.  The payday lender has to prove that both of these ideas were present in your head at the moment you took out the loan.  This is virtually impossible to prove because they don't know what you were thinking.  http://www.in.gov/dfi/FAQ_-_Check_fraud_.pdf .  In my experience, people take out payday loans because they need the money to pay their bills.  They always intend to repay them, but the fees and interest are too expensive, and it becomes impossible to repay the loan.

IF YOU ARE THREATENED WITH LEGAL CONSEQUENCES, GET LEGAL ADVICE

As you can see, you can't believe what you hear on the phone from a debt collector.  If you are getting phone calls that threaten you with jail time or other consequences, it is time to call a lawyer.  My office offers free consultations, and we are happy to talk through what creditors can do to you.  Payday loans are dischargeable in bankruptcy, and we can stop phone calls immediately.  We can also stop judgments, bank levies, and wage garnishments.

Related articles:

1.  Can I go to jail for being in debt? (clickable link)

2.  What debts are dischargeable in Bankruptcy?  (clickable link)

The Law Offices of Curtis K. Walker, designated a debt relief agency by an Act of Congress and the President of the
United States, has proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 29 years.

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