San Jose Bankruptcy Attorney comments on the relationship between payday lending and bankruptcy filings
San Jose Bankruptcy Attorney comments on the relationship between payday lending and bankruptcy filings.
The Silicon Valley Community Foundation recently released a report that shows that individuals who have approved payday loans are far more likely to file for bankruptcy within two years that people who do not utilize payday lenders. The report claims that the average 400 percent interest rate that California payday lenders charge traps those taking out the loans into a cycle of debt and interest that typically ends in a Chapter 7 or Chapter 13 bankruptcy filing.
California, unlike more than a dozen states and the District of Columbia, has not adopted an interest rate cap of 36 percent. California does have a cap of $300 for a payday loan, but the interest rate is not capped, which often leads a typical individual to pay $800 to pay back an initial $300 loan which is often due within two weeks. Many individuals are unable to repay at that times due to an ongoing cash crisis, and renew the loan, which takes them farther into debt.
Bankruptcy is often the only option left for people caught in this debt spiral. Payday lending is most prevalent among minorities and single women, who often have fewer credit options than wealthier areas. A Chapter 7 liquidation or a Chapter 13 reorganization can reduce or eliminate the payday lending debts, which quickly overwhelm the borrowers who are struggling to keep a roof over their heads and food on the table, according to the report.
Community Foundation and Public Interest Law Firm Release Report on Payday Lending, www.siliconvalleycf.org.
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