What to Do if You’ve Received a Court Summons for an Unpaid Payday Loan
Debt collectors often sue payday lenders, sometimes for many times more than the original loan amount. Getting served a court summons can be frightening, but don’t panic: read our guide and learn how to defend yourself.
When Can You Receive a Court Summons for a Paycheck Loan?
75% of all payday loans are issued to people who use paycheck lending services 11 or more times every year. These loans can easily become a vicious cycle: you’ll be spending all your money to pay off the debt and then have to borrow again to pay the bills. But what happens you can’t pay at all?
If the creditor can’t make you pay, they will sell it to a collection agency, which will first barrage you with calls, then try to withdraw money from your account, send you an attorney letter, and finally, file a lawsuit. It’s at this point that you’ll receive a court summons.
Many borrowers think that a lender or collection agency won’t bother suing them if the loan is small, but this is not true. Even if the original loan was just $300, once you add the accumulated interest, and late penalties, the sum can balloon to thousands of dollars – and that is worth suing over.
The 4 Most Common Questions About Payday Loan Court Summons
1) Can I Get Arrested or Go to Jail if I Don’t Repay a Paycheck Loan?
No, because defaulting on a payday loan is not a crime. In fact, if the creditor or collector threatens you with arrest, they are committing a criminal offense! But if the judge eventually orders you to appear in court (as opposed to just summoning you) and you ignore the order, you can indeed get arrested.
2) Do Payday Lenders Often Sue Borrowers?
No, but collection agencies do. In fact, if you receive a paycheck loan court summons, it will likely be from a collector.
3) Can the Lender Garnish My Wages?
Yes, if the judge rules against you. The court may also be put a lien on your home or car or order a levy on your bank account. Note that public benefits can’t be garnished, however.
4) Will I Have to Go to Court?
No, because a court summons is not an order to appear. If you don’t respond to the summons, the judge will decide the case without you – and you’re almost guaranteed to lose.
What to Do if You are Served a Court Summons for a Paycheck Loan – the 6 Steps
1) Read the Summons Very Carefully
- Don’t panic and take your time. Since the summons is likely to be from a collector, make sure that: the debt is indeed yours
- it hasn’t been paid yet,
- the amount is right
- it’s not past the statute of limitations.
Also, think of any inappropriate or illegal actions the collectors may have committed. Refer to the Fair Debt Collection Practices Act (FDCPA) and to the FTC Debt Collection FAQs to know your rights.
2) File an Answer
The summons will contain a deadline by which you must respond to the complaint (usually 28 days). If you don’t, you’ll lose the case by default. In fact, that’s what the lender is hoping for.
Technically you don’t need an attorney to file an answer, but if you can get a free or low-cost consultation – e.g. from a non-profit credit counselor – go for it. A well-written response to a summons increases your chances to win the case or get it dismissed. Plus, an attorney will tell you if you should start considering bankruptcy.
Mail a copy of the response to the creditor or their attorney, and take 3 more copies to the court. The clerk will stamp them, file one or two of them, and give the remaining copy to you (more information here).
3) Try to Settle the Debt
Ideally, you should do this before the loan is passed on to collectors. On average, lenders receive only $0.04 for each $1 of debt they sell to collection agencies, basically losing 96% of the debt’s value. If you can offer to repay even 20% or 30% of what you owe, the creditor might very well agree and offer you an affordable settlement plan.
Obviously, you shouldn’t take out another paycheck loan to pay off the debt.
Let us stress this once again: make every effort to settle outside of court. If the debt is valid and the collectors have not acted illegally, you run a high risk of losing the case.
4) Demand Debt Verification
In a lot of states, when suing a debtor, a payday lender or collector must provide a copy of the original loan agreement. A collector must also have proof that they have a right to collect the debt. It can happen that the loan itself is void – for example if the original creditor wasn’t licensed to offer paycheck loans in your state. In this case, the collector would be liable under the FDCPA.
If proper documentation isn’t attached to the summons, you should file a motion with the court to make the collector produce proof. If they fail to do so, the case will likely be dismissed, and in any case, the verification procedure will give you extra time to prepare your defense. Learn more about debt validation here.
5) Find an Attorney
Contact your local attorney referral service and ask for a lawyer specializing in debt collection defense. Low-income debtors sometimes qualify for free or reduced-fee legal aid.
In the best case scenario, the lawyer will help you take the collectors themselves to court – for instance, for threatening you with criminal charges or for calling you after you’ve told them to stop (find out more about collection phone calls).
6) Consider Bankruptcy
Under Chapter 7 of the U.S. Bankruptcy code, bankruptcy will discharge your payday loan debt, together with unpaid utility bills and credit card debt. The creditor or collectors won’t be able to sue you after you’ve filed for bankruptcy. However, they can object to the discharge if the loan was issued shortly before you’ve filed for bankruptcy.
Bankruptcy can be a valid option if servicing the debt costs more than you earn each month. However, consider the negative consequences
- Damage to your credit score: a Chapter 7 bankruptcy will stay on your credit file for 10 years;
- Difficulty getting loans (even a credit card) or buying a house in the future;
- Social stigma: people might view you as a loser.
In any case, don’t file for bankruptcy without consulting an attorney.
In Conclusion: Don’t Rush
When dealing with court summons over payday loans, the most important thing is to consider your options carefully. Remember that you have 28 days to respond to the summons – that should be enough to get legal advice and plan a careful strategy.
Often, you can either settle the matter with the creditor without paying the full amount or even prove that the debt is void in the first place. In any case, this experience will be a valuable lesson about using payday loans responsibly.