Lawmakers can’t come to an agreement on extending federal spending‚ launching the government into a partial shutdown. Hundreds of thousands of federal employees are going to be left without a paycheck.
There will be some essential personnel who will continue to work‚ but some 800‚000 have had their incomes put on hold. Meanwhile‚ their financial obligations remain. Bills will still have to be paid.
Our Los Angeles bankruptcy lawyers know that some may have emergency funds on which to rely in order to ride out the storm. However‚ recent research says that more than a quarter of Americans have no emergency savings. Even those who do‚ may not have enough to cover much more than a month or so.
Some may borrow from family or friends. Others may begin to rely on credit cards to cover basic bills. And still others may turn to high-interest payday loans.
This scenario is obviously not ideal. However most consumers will choose these options when faced with the possibility of otherwise defaulting on a financial obligation‚ even if it ends up costing them dearly to do so.
If workers had been struggling paycheck-to-paycheck or overwhelmed with debt before‚ this could unquestionably set them over the edge.
The Pew Charitable Trusts reports that some 12 million Americans rely on payday loans every year. The average borrower ends up indebted five times more than the original loan amount.
A person may take out a $375 dollar loan‚ but take five months paying it back‚ resulting in $520 in finance charges. What is supposed to be a strategic‚ short-term financial tool ends up snowballing into a long-term debt burden.
As we recently reported in our Los Angeles Bankruptcy Lawyer‚ California legislators shot down a bill that would have barred borrowers from taking out more than four payday loans in a year. The measure would have also required borrowers to be more thoroughly vetted‚ the idea being that those who couldn’t truly afford payday loans wouldn’t become ensnared in an ugly debt cycle.
As it didn’t pass‚ these predatory loans are still widely available‚ with companies often actively targeting those who can least afford it.
California law does already limit a single payday loan to a maximum of $300‚ with interest not to exceed 15 percent. If a person borrows $200 for two weeks‚ he or she would end up owing $230 by the time the next paycheck arrives. If that was translated to an annual percentage rate‚ it will be 13 times higher than the most expensive credit card.
In most cases‚ payday lenders mandate that borrowers hand over personal data – including their bank account information – before agreeing to complete the loan. This way‚ they can guarantee the ability to siphon the money‚ regardless of the borrower’s ability to pay it.
Defaulting on a single payday loan or even a series of them probably still wouldn’t be enough to warrant a bankruptcy filing. However‚ for many consumers who rely upon such lenders‚ it’s just a symptom of the larger problem.
If you are overwhelmed by debt‚ regardless of the reason‚ we can help.
If you are contemplating bankruptcy in Los Angeles‚ contact Cal West Law to schedule your free consultation. Call (818) 446-1334