A study completed by Hoyes, Michalos last year indicated that 1 in 8 people who have filed for bankruptcy or consumer proposal had at least one payday loan.
From the files we reviewed, if someone owed money to payday loans, they didn’t owe just one company, but had an average of three outstanding payday loans with a total balance owing of $2,500.
Payday loans are an extremely expensive method for borrowing money and should be avoided. Once someone starts with a payday loan it can be a difficult hole to climb out from.
Example: Mary is short on cash and isn’t paid until next week. She borrows $250 from a payday loan store. She receives her pay cheque the following week and has to payback $300 to the payday loan store. Now she is short $300 for the week. She then goes to the next payday loan store and borrows $300. With her next paycheque she owes $350, and the cycle continues.
How Do You Break The Payday Loan Cycle?
Filing for bankruptcy or a consumer proposal will eliminate your payday loans.
If you are going to file for bankruptcy or make a proposal to your creditors to eliminate your payday loans and other debts there are some other things you should do as well.
- It is very important to switch your bank account to a different bank.
- Cancel any preauthorized payments (with the exception of your mortgage or car loan). You don’t want to have the payday loan company “accidentally” taking a payment out after you file for bankruptcy.
- If you have given authorization for payroll deduction at work, unless there is a court order, you can tell your employer that you want to cancel the authorization.
Don’t Be Led Astray
Don’t be fooled when the payday loan company tells you that their debt cannot be included in your bankruptcy or proposal, or that you should leave it off the list because it is small. There is nothing about payday loans that makes them exempt from bankruptcy rules.
If you are short on cash and thinking about going to a payday loan company, before you go, take a hard look at your finances and the reason that you are thinking about going in the first place. If you are between paycheques, but you have utilities to pay, talk to the utility company and work out a payment plan. Communication with your creditors is key. If you are borrowing money from payday loans to make a debt payment, you are just exchanging debt for even higher interest debt.
Contact an experienced bankruptcy trustee and break the payday loan cycle today.