Can I Go to Jail for Not Paying a Payday Loan?

Can I Go to Jail for Not Paying a Payday Loan?

While taking out a personal loan may seem like a quick solution to a temporary cash shortage, in most cases it leads to even greater debt. The Consumer Financial Protection Bureau (CFPB) released a report showing that over 14 days, 80% of borrowers will eventually have to roll over the payroll loan or apply for another loan to cover the original payroll loan. This means that only 20% of borrowers have the money to repay the loan as scheduled on the next payday.

So what happens when you find yourself with the 80% of borrowers who can’t pay off their payroll? Will you be jailed?

What does the law say about being arrested for defaulting on debt?

When we get 28 U.S. Reading Code §2007, “Debt Arrest”, we see that the federal government leaves debt bondage to each state. A total of 41 states have language in their state constitutions that prohibit the arrest of a person for failing to pay a debt. The nine states that do not have this clause are Connecticut, Delaware, Louisiana, Maine, Massachusetts, New Hampshire, New York, Virginia, and West Virginia.

While there are no laws in the said states of the US to prevent debt arrest, it is still highly unlikely that anyone will end up in jail if they cannot get the money to pay off their payday loan. According to The Wall Street Journal, most prison sentences do not arise from failing to pay your debt, but from failing to appear in court or following the court’s decision in your case.

The Consumer Financial Protection Bureau, which is responsible for regulating payroll loans at the federal level, is very clear: “No, you can’t be arrested for defaulting on a payroll.”

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A US court can only order arrest for crimes, and failure to pay a debt is a civil offense.

What is the difference? The criminal prosecution concerns a crime against the state. Civil commissions are disputes between individuals or companies.

Therefore, creditors can only take you to the civil court, not to the criminal court.

Failure to pay a payday loan is not fraud

One way that collection agencies try to intimidate borrowers is by claiming that the borrower has committed fraud, which is a criminal offense. A person can be criminally prosecuted if he commits fraud; However, taking out a wage loan and not being able to repay it is not a fraud.

Fraud occurs when a person knowingly takes out a loan with no intention of repaying it. It is a form of deception. In addition to proving that this was the borrower’s intent in court, the collection agency would also have to prove that the borrower was fully aware that his bank account would be empty a week after the loan payment was due.

In most cases of a paycheck loan, the borrower simply does not realize how much interest and fees increase the total cost of the paycheck. The interest rates on some of these loans can exceed an annual rate of 400%. This is adding up quickly. When the payment is due, the total is higher than expected and they cannot repay the loan.

In most cases, it is even illegal for collectors to threaten jail time.

Collection agencies waste no time when a borrower does not repay their personal loan on the due date. They usually start calling the borrower right away — and sometimes their friends or family. Many do it at all hours of the day and night. This can be very stressful for the borrower, who wants to pay off his loan, but simply cannot. Some collection agencies will even call or threaten you at work to charge you. These threats could include your arrest.

The Federal Trade Commission has passed the Fair Debt Collection Practices Act, a federal law designed to protect consumers from abuse by debt collectors. This law states that collection agencies may only try to reach you between 8 a.m. and 9 p.m. Nor can they call you at work if our job prohibits outside communication, nor can they harass you (or someone you know) about debt.

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According to the CFPB, you can do three things if a conductor threatens to arrest you.

  1. File a report with your Attorney General. If you don’t know who your state’s attorney general is, you can find their information by contacting the National Association of Attorneys General at or by calling 202-326-6000.
  2. File a report with your state regulator. The CFPB has a list of each state’s banking supervisors and their contact details on their website.
  3. Submit a report to the CFPB by calling 855-411-2372 or by filling out their online form.

However, ignoring court orders can lead to arrests.

The CFPB states that “if you are prosecuted or a court order is issued against you and you violate a court order to appear, a judge may issue a warrant for your arrest.” His prison sentence would be the result of not cooperating with the courts, not having debts.

While you may be tempted to ignore a subpoena, DO NOT. Appearing in court is intimidating and uncomfortable and could lead to you losing your job, but failing to do so not only puts jail on the table, but a judge can order wage garnishments.

There are several things you can do to avoid arrest.

  1. Contact your lender and negotiate the best terms. This shows that you want to repay the loan, and in many cases, the lender would rather settle for a smaller payment for a longer period than no money at all.
  2. Contact a bankruptcy attorney to review your finances and see if it is advisable to file Chapter 7 or Chapter 13 bankruptcy. Both records relate to payday loans.
  3. Ask a credit consultant for advice. A credit advisor can consolidate your debts, offer a lower interest rate and better payment terms.
  4. Participate in all legal proceedings. Consult a lawyer if possible. The attorney can step in and get the creditor to agree to a new payment plan that you can afford. Many lawyers offer a free initial consultation.
  5. Abide by all court decisions.
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And the horror stories?

Lenders often lower themselves to low levels to get a payment from a borrower. CNN Money reported on several collection agencies using scare and intimidation tactics, such as threatening arrest and sending child protection services home. The online magazine also revealed that a collection agency even threatened to kill a debtor’s dog.

After the investigation, CNBC found that most borrowers are busy with multiple jobs and trying to juggle childcare. When a borrower can’t attend one of their court hearings for an unpaid debt, collection agencies go straight to an arrest warrant. In many cases, an arrest warrant is issued.

Fortunately, the American Civil Liberties Union (ACLU) is committed to abolishing jail time for indebted individuals. They are committed to exposing the unfair practices of debt collection agencies and asking the courts to enact fair laws when it comes to debt.


You can’t go to jail because you didn’t pay off a personal loan. However, you could be sentenced to prison if you miss a hearing or ignore a court summons. Be proactive and be present and fully prepared for legal challenges. Better yet, work with your creditor first to avoid subpoenas.

Frequently Asked Questions

How much does a payday loan attorney cost?

The cost of a lawyer generally depends on the complexity of your case. They will charge you based on the scope of the work, the amount of debt, and the difficulty of the settlement. The good news is that most law firms offer a free initial consultation, which can help you decide on a strategy if you have a subpoena or are considering filing for bankruptcy.

What is the difference between an installment loan and an installment loan?

The main difference is the amounts borrowed. While payday loans are small amounts of money, ranging from $100 to $1,500, installment loans allow for higher loan amounts that can run up to several thousand dollars. A personal loan usually does not require a credit check, while your credit score is important if you are applying for an installment loan.

How do I find out if a Payday Lender is licensed in my state?

To find out if a payday lender is licensed to conduct business in your state, confirm the information with your state regulator or attorney general.

Many states do not allow payday loans, and some states that allow payday loans require lenders to be licensed. In some states, if a payroll loan is provided by a company that is not licensed in your state, the payroll loan may be voided.

If this happens, the lender may not be able to collect or repay your personal loan.

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