Can Payday Loans Take You to Court

If you’re behind on your payday loan, you’re likely worried about what might happen to you. Though of course there are consequences to not paying your lender, you’re not going to lose your house or car. Payday loans are unsecured loans. 

Can you be taken to court? Can you be taken to jail? The answers are below.

What happens when you default on a payday loan?

Defaulting on a payday loan obviously comes with repercussions. Your lender will continue to try and collect payment from you for about 60 days, but once 60 days elapses, your debt will then be turned over to a debt collections agency. Whether the collections agency merely represents your lender or is unaffiliated depends on your lender and how it chooses to deal with unpaid debts.  

Will payday lenders send your debt to collections?

Yes, they can and likely will if you don’t make payments. This either means your loan has been sold to a third party, or that the lender itself has an in-house collection agency. Either way, it goes, know that collection agencies are more persistent than lenders. They will call every day, and, if you stop answering your phone number, they will instead start contacting the references you listed on your loan application.

Don’t worry, federal law dictates that they can’t tell your reference why they’re calling, but they will ask your references for help in contacting you. Obviously, this is a red flag to a lot of people, and your references will likely figure out why they are suddenly getting calls from strangers about you.

Another thing to keep in mind is that if your debt is sold to a collection agency, the collection agency may take part in credit reporting, meaning your unpaid loan will hurt your credit score. 

Can a payday lender sue you?

Payday lenders can take you to court. In truth, anyone can take you to court. 

It doesn’t happen that often, but it’s not unheard of to be taken to court by a payday lender. Even though your payday loan was only for a small amount, no amount is too small to be sued over. 

Are you likely to lose if you get taken to court?

If you show up, the odds are in your favor. If you don’t, you will very likely lose. In fact, both lawyers and collection agencies bank on you not going. Always appear for all court summons. Just because you’ve been summoned does not mean the case is closed and that you have lost. 

Can a payday lender sue you after seven years?

All states have what is known as a statute of limitations. When it comes to debt and debt collecting, lenders are only legally allowed to collect upon those debts for 4 to 6 years since the last payment was received. Any debt that falls within the statute of limitations is what is known as a time-barred debt. Time-barred debts cannot be sued for, but lenders are still allowed to try and collect upon those debts (though there are ways to make them stop).

Your debt can still be sold to another party, and whoever owns your debt may try to still take you to court. If you don’t show up (which most people don’t), then your debt’s new owner can then utilize the court’s power to collect the money you owe. You don’t want this to happen. Definitely make sure you go to court! 

Can a collection agency take you to court?

Yes. Though they only paid pennies on the dollar for your loan, a collection agency could certainly take you to court. Unfortunately, collection agencies often win because the borrower doesn’t take the court summons seriously. By not showing up, the collection agency more or less automatically wins. When this happens, the court may start collecting the money on the agency’s behalf. 

Because the court is collecting the money, you may be subject to:

  • Wage garnishment
  • Property liens
  • Bank account levies

Should you hire a lawyer if taken to court over unpaid payday loans?

If you can afford one, you definitely want a lawyer to represent you in court. On top of getting the calls to stop, he or she will also give you expert legal advice, negotiate with the lenders on your behalf, and may even be able to settle the case outside of court. 

Can a payday lender garnish your wages?

Yes and no, but the answer is more in technicalities than anything else.

Just so everyone is on the same page, wage garnishment is when a court orders your employer to hold back some of the money from your paycheck and send it instead directly to whomever you owe money. The money never touches your checking account. You never even see it. Until the debt is paid off, what you owe is sent in installments to the creditor.

So can a payday lender garnish your wages? 

Yes, but a payday lender can’t garnish your wages on its own. It has to first take you to court and win. Most people taken to court over unpaid payday loans typically do not show up. This is unfortunate, because, no matter how culpable you feel you are, that does not mean you would lose. However, when you don’t show up, you’re basically giving the lender or collection agency a free win. 

Once the lender or collection agency has won against you in court, your wages may very well be garnished, though this power technically lies with the courts and not the lender. 

Can you go to jail over unpaid payday loans?

No, you can’t go to jail over unpaid payday loans or other debts. Simply put, it’s not a criminal offense. Should a lender try to threaten you with jail time, then he or she is severely misinformed. Should you be threatened with jail time by either your lender or a collection agency, immediately contact your state attorney general. 

If a criminal complaint has been filed against you, always go to court, regardless of how ludicrous the complaint is. If you don’t show up, the court is likely to rule against you. 

Is it possible to settle a payday loan?

Yes, it is possible. Lenders don’t like to sell your loan to collection agencies if they don’t have to. Collection agencies don’t pay the full dollar amount for whatever debt you owe. They’ll usually only pay pennies on the dollar. It’s a big loss to lenders to do this, but something is always better than nothing. It’s in your best interest to try and negotiate with the lender if you truly cannot pay them.

When you call, tell your lender that you’re considering bankruptcy because you can’t pay upon your debts. Saying this will cause them to seriously consider your offer of settling because if you are awarded bankruptcy, they won’t get a single dime. 

Start by offering 50% of what you owe. You’d be surprised by how often this works for a lot of borrowers.  

Are personal loans the better choice?

Depending on your financial situation, if you can qualify for a personal loan, these are usually the better alternative. One reason is that the interest rates are much lower and the loan terms much longer. So though you’ll make payments for a longer time, the monthly payment will be much lower. Payday loans are short term loans and require you to pay back the entire amount in one lump sum, including fees. This is often too much for people to pay back, and is the very reason their loans are sent to a debt collector.

Yes, it’s still possible to be sued over a personal loan, but because the loan terms are much better, you’ll be less likely to be put into that situation. 

Where should you go for more information on payday loans?

The best place to start understanding your rights is the Consumer Financial Protection Bureau

You should also be aware of your state’s laws in regards to payday loans. Each state has its own rules when it comes to them.

Know your rights, and if you’ve been given a court summons, don’t ignore it. Contact a lawyer as soon as you can.