Some payday lenders threaten to call the police if the check bounces, prompting one to ask, “can I go to jail for defaulting on a payday loan?”
A payday loan is usually a small loan with a postdated check as collateral for the loan. The due date is usually the date of the person’s next paycheck. Payday loans carry a high interest rate, often more than 300%. If one borrows $900 on March 1 and has to pay $990 back on March 15, it may not seem like much. However, ten percent over two weeks is equivalent to 260% over a year. If someone repeatedly took out this same loan for a full year, that person would pay 260% interest on $900, which amounts to paying the $900 back, plus $2,340 in interest.
What happens when the lender tries to cash the postdated check? Because the check was postdated, the lender would not expect you to have funds to cover the check on the date you gave them the check. Having insufficient funds on the due date does not amount to a criminal offense unless you gave the lender a check knowing you would have no funds to cover it on the due date. Because you would be receiving your paycheck at that time, you would certainly expect to have sufficient funds to cover the check on the due date. Accordingly, any threat by the lender to call the police to have you arrested for passing a bad check is likely to be an empty threat.
Can bankruptcy discharge this debt? Of course it can. Bankruptcy cannot eliminate one’s criminal liability if the funds were stolen or procured by fraud. In such instances, one may not even receive a discharge for such debts. However, payday loans, as discussed above, rarely involve any potential criminal liability, which means that the loan can usually be easily discharged in bankruptcy.