Although Kentucky lawmakers have taken steps that will eventually lead to the end of payday loans in the state (since no new licenses will be issued) , they remain legal for now, with some strict supervision.
In general, payday loans are small cash advances that the borrower takes out against their next paycheck. They’re often used in emergencies when someone has an urgent need and no savings or other resources.
Unfortunately, they’re also a debt trap. Here’s what you need to know:
How do payday loans work?
Even though state law limits finance charges to $15 per $100 borrowed for a two-week period, without rollovers, there’s no cooling-off period. Once the debt is repaid, the borrower can immediately re-borrow – and most do.
After all, when you’re barely making ends meet and living paycheck to paycheck, there isn’t a lot of money leftover to repay that debt, especially with interest. Unless the borrower is able to come up with some “extra” cash to repay the debt without borrowing again, they can easily get caught in a debt cycle that has them paying endless interest on loans that never really end.
Since the payday lender usually holds a post-dated check for the amount you owe, you can’t exactly just refuse to pay the loan. If you write a bad check, you could be sued or threatened with prosecution for fraud.
Can you include payday loans in a bankruptcy?
Payday loans are considered unsecured debts, meaning there’s no collateral or items of value pledged to secure the loan that the lender can seize.
If you file for a Chapter 7 bankruptcy, your payday lender (or lenders) can be listed among your other creditors and, absent any complications, will likely be fully discharged. If you file Chapter 13, your debts will be reorganized, and the payday lender will get whatever the bankruptcy trustee decides is fair in payments over the term of your bankruptcy.
If you’re stuck in what seems like an impossible maze of debt, there is help available. It may be time to talk to someone about your legal options.