Imagine getting your paycheck and it’s far lower than you are expecting. Is it your boss’s fault? Or the accounting department?
Or maybe it was that payday loan lender!
Payday loans have been helpful for many people who need extra money. However, the same people who receive that extra money usually don’t know the full extent of their legal rights.
That leads to the big question: can payday loans garnish your wages? Read our comprehensive guide to discover the answer!
What Are Payday Loans
This article is devoted to understanding answers to questions like “can a payday loan company sue you?” However, it’s important that we get on the same page regarding another topic: what are payday loans?
These are loans that are typically for small amounts (say, $500 or less), and the lender expects you to pay the loan back when your next payday rolls around. In this way, payday loans function like a kind of third party advance on your pay.
So far, so good, right? As you might expect, there’s a catch: while these loans are very easy to qualify for, they also carry a very high interest rate. And while these rates may be regulated by state law, you still end up paying a large amount of interest over a short period of time.
Unlike other lenders, payday lenders are not very sympathetic if you are unable to pay them back right away. This can lead to them threatening many kinds of action, including wage garnishment.
What Is Wage Garnishment
Most of us understand that “wage garnishment” is a bad thing from the name alone. It means they’re taking your money, right? However, if you want to fully understand how payday lenders and wage garnishments work, it’s important to fully understand what wage garnishment is.
The basic idea is that your employer is legally compelled to hold back a portion of each check to help pay for your debts. In this way, you are taken out the equation: you don’t pay the loan back out of choice, but the lender and your employer force you to pay it back.
Wage garnishment often inspires a sense of helplessness among those who have received payday loans. It’s important to avoid garnishment whenever possible, which is why it’s important to learn as much about this matter as you possible can.
Why Is This a Concern?
As we said, many people are very concerned about the prospect of having their wages garnished. It’s enough to make you ask how often this happens or, more directly, why this is such a major concern at all.
The answer to this question is depressingly simple: threats. The payday lender, in conjunction with a collection company, will often stop at nothing in order to get money from those who owe.
A rookie mistake that many people make is assuming that the amount they owe is too small for a collections company to get the law involved. However, these companies often have a reputation for suing even over small amounts (more on this later).
However, companies often issue threats before they have any legal backing. And some of those threats are outright illegal, as we will discuss later on.
Do They Have Your Info?
The whole principle behind wage garnishment is that the lender has no other way to get the money back from you. However, depending on the information that you have already provided them, the lender may be able to start getting your money with no garnishment at all!
Long story short, many payday lenders have become more modernized. In fact, many of them are online online instead of having a physical address. For this reason, many of their clients trust those companies with things like their bank account number in order to facilitate an easy deposit.
Unfortunately, this is one of those times that you really need to check the fine print of the loan you took out. It’s entirely possible that the payday lender would be completely within their rights to yank the money you owe them right out of your bank account.
As an insult to injury, they will automatically apply the exorbitant interest rate amount to anything you owe. That is why it is good to avoid providing things like your bank account number to any kind of payday lender.
What Is a Wage Assignment?
So far, we’ve been focusing strictly on the idea of wage garnishment. However, if you’re not careful, you might agree to another kind of payday loan animal known as the wage assignment.
Some payday lenders will require you to sign a wage assignment in order to receive any kind of money. It’s important to know your rights, though: wage assignments are strictly voluntary, and there are plenty of payday lenders who will not try to push this assignment on you.
There’s some good news and bad news when it comes to a wage assignment. The bad news is that the lender can get the ball rolling pretty quick: one letter to your employer and they start getting your money–no court involvement necessary!
The good news is that a wage assignment is much easier to stop than a wage garnishment. All you have to do is send a short letter via certified mail to both the payday lender and your company’s payroll department.
Remember when we said the assignment was voluntary? All you have to do in your letter is specify that you revoke the lender’s right to use the wage assignment as of that day’s date.
And just like that, the wage assignment is finished!
No Going Directly to Jail
The idea of wage garnishment is really scary. Heck, let’s be honest: the reality of wage garnishment is even scarier! However, some payday lenders and their debt collectors end up taking things way too far.
Specifically, many of them will threaten you with jail time if you do not pay the amount that is owed. And those are the stark terms they will use to frame the matter: “pay the money and go to jail.”
Let us be completely clear: you cannot be arrested for failure to pay a debt, and so-called “debtors’ prisons” are a thing of the past.
Additionally, it’s illegal for the lender or the debt collector to threaten you with arrest over this matter. If this has happened to you, be sure to contact your state attorney general as soon as possible and report the matter!
Can Payday Loans Garnish Your Wages?
So, all of this leads up to the big question: can payday lenders garnish your wages? Well, the answer to this is “yes and no.”
The lender and the debt collection company cannot unilaterally garnish your wages. Otherwise, these companies would be doing this to countless more people! Instead, they must first take you to court.
The first step in wage garnishment is for the lender to sue you over the amount that you owe. This means that you have a chance to defend yourself in a court of law, but many of these companies count on either their courtroom experience helping them win or the defendant not showing up (more on this later).
Only after the court enters a judgment against you can the payday lender be able to garnish your wages. Fortunately, there are many chances for you to work with the lender before it comes to this.
The Power of Negotiation
Despite the fact that they won’t hesitate to take legal action, it is never the preferred option for these payday lenders. Think about it: they have to spend months or even years trying to get the money they are owed, and they end up losing out on up to half of it when they hire a collections company.
They would much rather work with you directly to get the money they are owed. That means that you have some potential leverage when it comes to negotiation.
First, take the time to explain your situation to the lender. They may or may not care, but if you get lucky, you’ll find someone who has some sympathy towards you and your situation.
Of course, you can’t count on sympathy. That’s why your ace in the hole is to casually mention that you are considering bankruptcy because of your mounting debts.
You don’t have to actually be considering this drastic step. However, this is one of the few things that can actually stop a wage garnishment (more on this very soon).
Once they are sweating about the prospect of getting no money from you at all, you can throw out some offers. For instance, start out by offering to pay 50% of the total debt that you owe.
They may or may not accept this amount, and negotiations may go back and forth. Whatever the final agreement is, be sure to get it in writing, with the lender specifying your debt will be “exhausted.”
Don’t Ignore a Summons
Remember how we said that the lender has to sue you first in order to get a wage garnishment? Unfortunately, they have a secret weapon on their side: human apathy.
For whatever reason, the majority of individuals sued over debt fail to show up for their court summons. This makes things easy on both the court and the lender, as there will be a summary judgment against you on behalf of the lender.
This is why it’s important to show up for any and all court summons. And make sure you make them work for it: demand proof of what they say you owe.
As a tactic, this can put the shoe on the other foot: if the lender has not brought proof (or simply not brought sufficient proof) of what you owe, then you may be able to get a summary judgment in your favor, avoiding the wage garnishment entirely.
Can You Stop a Garnishment?
We’ve talked about ways to avoid wage garnishment and your legal rights concerning the garnishment itself. However, once wage garnishment begins, there’s a big question that needs answering: how can you stop it?
Unfortunately, the answer to this question is “not very easily.” As we mentioned earlier, you have a nuclear option of stopping garnishment in the form of declaring bankruptcy. However, this has such a dire effect on your credit and finances that you should truly consider it a last option.
Otherwise, your only real recourse is to challenge the garnishment. There are limited grounds you can challenge it on, such as the lender having been already paid or if they failed to give you timely notice of the upcoming garnishment.
For better or for worse, a legal objection gives you another day in court and another opportunity to negotiate. Even if you cannot sway the court regarding your challenge, you may be able to hash out a payment plan with the lender and have them voluntarily lift the garnishment.
Sometimes, the old advice is the best advice. In this case, “an ounce of prevention is better than a pound of cure.”
Don’t be too proud to seek out federal, state, and community assistance programs that may be able to help you make ends meet. And try to consult with a credit counselor or other financial adviser who may be able to help you chart a better financial future for you and your family.
The Bottom Line
Now you have an answer to that burning question, “can payday loans garnish your wages?” With any luck, you’ve learned to not trust payday lenders.
However, there will still be times that you need a loan to help out. In this case, do you know a lender who is truly trustworthy?
At Bonsai Finance, we are the final authority in loans to help you out. In addition to a full range of personal and student loans, we also offer debt consolidation services to help you take control of your finances once more.
To see how we can help out, visit our learning center today!