Podcast #7: Garnishments, Payday Loans


While the information given in this podcast is instructional, it is not intended to be taken as legal advice for your particular legal or financial situation. The recommendations that we give to one person may not be appropriate to your particular situation. The information contained in these podcasts is also not intended to replace the advice that you would receive from an actual consultation with a competent legal professional practicing in the area of consumer bankruptcy law.


Welcome to morsebankruptcy.com, the podcast. On these podcast we take bankruptcy topics from different sources, the source for this podcast are questions that are asked by visitors to our website. Usually these are the first questions that people are asking when they are looking into bankruptcy as a possible solution to their financial situation and this writer writes.

Viewer Question

Can you help me? I live in Greeley Colorado possible chapter 7 or 13, two vehicles and possibly about 7 advanced loans. I need help right away, thank you.

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Now what I believe this writer is referring to as an advanced loan is what we call a cash advance or more in the colloquial, payday loans, which are sort of this lending cancer that popped up in large numbers in Colorado around 2005/2006. Before that we didn’t hear too much of these folks, and it was about a year after they really gained prominence that our wonderful legislature decided to tackle the problem. Their solution was to come up with the program where you had to be given a six month payout or payoff period. So essentially, if you’ve gotten yourself with multiple payday loans you go into the establishment that gave it to you in a first place and they’d have to give a set balance and divide that by 6 and you’d have six months worth of those payment to pay it off.

The only problem is most of the flyers they were told that they have to make available to you these places are kept under counter or somewhere likewise where you can’t see. So most people have no idea these programs even exist and then there’s sort of practical limitation to it. If you had consistent income, if things in your life are going well enough that you could make 6 large payments in a row without being off by a day, a moment or a month, whatever the criteria was, you probably wouldn’t need these loans to begin with. So this solution is part of its own problem. If you had steady enough income, if the things in your life were so serene that you could pay off this particular loan consistently over six months, you probably wouldn’t need it in first place.

But this individual writer typifies a particular type of client that we are seeing more and more of in 2012 and somewhat in 2011. Unfortunately, I expect to see lot more of it in 2013 and we call these load debt balance filers. Essentially if you went back several years in bankruptcy law you’d see people with credit card loads around $20,000 to $30,000 and may be $40,000 on average something in that neighborhood and you’d see medical debts anywhere from the $15,000 to $100,000 plus range. These payday loan cases tend to come in with $10,000 or less of debt but people are still looking for bankruptcy relief and lot of time the outsider wonders why. Is this bankruptcy practitioner filing them just for the sake of getting the fee or did they really need to file bankruptcy. Is this kind of debt that may be more properly should be handled outside the bankruptcy route.

I kinda come out of both sides of this and if there are times when people could probably negotiate these things out or could somehow consolidate them into a more manageable type of loan. It really just depends on where the loan is, or the group of loans are, in the collection process.
Payday loans are local unsophisticated loans is generally local mom and pop type shops. Extended families own them and as a result they tend to be very locally collected on. So a lot of time what you will see is somebody taking out a payday loan at whatever unbelievable interest rate they are charging that day. The loan goes into the default. They have to get another payday loan to pay the first payday loan and sort of the robbing Peter to pay Paul scenario. Accept it takes place multiple of times and you end up with sort of a who’s who of payday loans in that person’s particular town.

The problem when these things goes into default because they are so locally generated in locally collected on is that they get very well versed in their local county courts. They go down, they slap a summons and a complaint on someone in a heartbeat and before you know it you have a judgment and that judgment turns around to the same county court to apply for writ of garnishment and now you are getting garnished which means 25% of your take home wages are being taken away or they go after your bank account in which case they just get whatever is there on the day the writ of garnishment happens to hit.

So the problem is not this insurmountable amount at debt if it amounts to $3000, $5000, $7000 may be $10,000. It’s not that the person looking at that debt and saying I could never pay that off over my life time. The problem is that the debt has already gone into the collection stage so quickly where it is threatening to garnish their check and if they are like most Americans they live check to check. And so whether you are making $2000 a month or $5000 a month if it takes you all of what you are making to live, losing 25% of that doesn’t mean you are losing your fun money it means you are losing the 25% that allows you to both pay rent and eat or pay rent and put gas in your car to drive to work to pay the rent. So that’s the problem these folks are facing.

So if you are in a situation where you are facing payday loans and it’s not that it’s a huge amount of debt but rather it’s the collections going on with that debt and you are afraid you are going to wake up and find your bank account drained or that 25% of your take home pay is going off, is going towards this debt and that’s enough to actually cause a disruption in your life – you’re going to need to pay rent, food, whatnot. That’s when you maybe think of it a bit more as a bankruptcy issue.

Once the bankruptcy is filed the court issues what’s called an automatic stay order and you can stop that county court civil proceeding or if a garnishments already been put into place the stay order will stop the garnishment from taking 25% of your wages. Payday loan cases typically are not an insurmountable amount of debt. What it is an unlivable collection practice that you are using the bankruptcy to stop.

So if you are in that situation, I think you really just have to figure out where are you at in the collections process. If you are still early on and no suits have been filed and no one is threatening to take your wages away maybe you could look at some type of consolidation loan and try and get these things out of the hands of the payday companies into a local respectable banking institution where you have a reasonable humane interest rate. If it’s gone on little furthered judgment have been entered writs of garnishment have been entered your bank account or your income is now in jeopardy then that’s probably the time when you need to consult with a bankruptcy attorney. See about getting a bankruptcy filed and a stay order put into place so that you don’t risk your livelihood. Small debt income or small debt bankruptcy that’s actually are pretty large problem and raising a really good question.


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