Recently in Tennessee, public officials held a hearing about a controversial type of credit — payday loans. These loans are given to consumers by businesses who do little to see if people can actually afford to pay the loan back. In exchange for the loan, creditors are given access to the person’s checking account. Therefore, the creditor is paid prior to any other payments being made from the account. These types of loans are often considered predatory because they charge unusually high annual interest rates — the average annual interest rate is 391 percent.
During the recession, many people in Tennessee had to rely on these types of loans to make ends meet. While other types of lending have been evaluated since the financial collapse, payday loans are largely the same. Without regulation, many people who cannot afford the loans are stuck in a pattern of borrowing more money, at high interest rates, just to pay their bills. Statistics show that payday creditors make 60 percent of their profits from people stuck in a borrowing pattern.
People in this situation may feel like they have no recourse other than to keep borrowing money. However, Tennessee residents should know that legal options are available that can help people get out of debt and have a fresh financial start. While there are many types of debt relief available, Chapter 13 bankruptcy will be the best fit for some consumers.
Under a Chapter 13 bankruptcy, creditors are paid a portion of what they are owed under a three or five-year repayment plan. This court-approved plan allows people to pay manageable payments while keeping their personal property. This can be a good options for people looking to pay past-due debt and get some debt relief at the same time.
Source: The Tennessean, “Predatory payday loans damaging to borrower, community,” Michael Calhoun, March 24, 2014