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Chapter 128 and payday loans; A chance for relief

Payday loans are supposed to be short-term financial fixes for emergencies, like a broken tooth or a flat tire when you're short on cash and credit and there's nobody in your social circle that's flush enough to lend you the cash.

They can quickly turn into a financial trap, not a fix. When your 14-day loan comes due, so do your other bills. Knowing you can't pay both, you pay the interest and charges on the original loan and "flip" it instead, buying another 14-day period. Months—or years—can go by while you struggle to pay off the principal.

Even worse, Wisconsin is one of only eight states lacking caps on the interest charged on payday loans, which means the sky's the limit on how high the interest rates can go. The average annual interest rate on a payday loan in the state is 565 percent. Borrow just $400 and you'll pay an additional $556, for a total of $956 in just over three months—if you're able to pay it off even then.

Short of a sudden financial windfall, how do you break the cycle? Your bills aren't going to stop coming in. You may even run into more unexpected expenses, forcing you to pay off a loan and quickly take out a bigger one, driving you deeper into debt.

One option available in Wisconsin is Chapter 128 debt reorganization. Unlike bankruptcy, it is usually handled through a simple petition that lists just the debts you want to include. It generally can cover most unsecured debts, like credit cards, medical bills, utility payments and payday loans.

Chapter 128 allows the debtor to consolidate the debts and the bankruptcy trustee's fees into a 3-year repayment plan. The bankruptcy trustee will then issue a protective order that stops the payday lender and any other creditors listed from adding on more interest, trying to garnish your wages or grab the money in your bank account in the meantime.

Unlike bankruptcy, a debtor asking for Chapter 128 protection doesn't have to go through mandatory credit counseling, appear in court, submit tax records or risk losing personal assets.

If you're stuck in what feels like a hopeless payday loan cycle, an attorney can help you learn more about your legal options.

Source: docs.legis.wisconsin.gov, "Chapter 128 Creditor's Actions," Jan. 06, 2017

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