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Unlawful Debt: What You Need to Know About Its Legal Definition
Definition & Meaning
An unlawful debt refers to a type of debt that cannot be enforced under state or federal law, either partially or entirely. This typically occurs when the debt is associated with lending money or providing something of value at a rate that exceeds legal limits, known as usury. Specifically, a debt is considered unlawful if it involves interest rates that are at least double the maximum enforceable rate allowed by law.
Table of content
Legal Use & context
The term "unlawful debt" is primarily used in the context of financial and criminal law, particularly under the Racketeer Influenced and Corrupt Organizations (RICO) Act. It is relevant in cases involving predatory lending practices, where lenders charge exorbitant interest rates. Users may encounter this term in legal proceedings related to debt collection, bankruptcy, or consumer protection. With the right legal templates from US Legal Forms, individuals can manage some of these situations themselves.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A lender offers a loan with an interest rate of 50%, while the legal maximum rate is 20%. This loan would be classified as an unlawful debt.
Example 2: A person borrows money from a payday lender who charges an interest rate that is significantly higher than state limits, resulting in an unenforceable debt (hypothetical example).
Relevant laws & statutes
The primary statute governing unlawful debts is the Racketeer Influenced and Corrupt Organizations (RICO) Act. Additionally, state usury laws also play a critical role in defining and regulating unlawful debts.
State-by-state differences
State
Usury Rate
Notes
California
10 percent
Strict enforcement of usury laws.
Texas
18 percent
Exceptions for certain types of loans.
New York
16 percent
Higher penalties for unlawful debts.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Difference
Usury
Charging an interest rate higher than the legal limit.
Usury is a broader term that encompasses unlawful debts.
Predatory Lending
Unfair, deceptive, or fraudulent practices in lending.
Predatory lending can lead to unlawful debts but is a distinct practice.
Common misunderstandings
What to do if this term applies to you
If you believe you are dealing with an unlawful debt, consider the following steps:
Review the terms of your loan or debt agreement to identify any usurious rates.
Consult a legal professional to understand your rights and options.
Explore US Legal Forms for templates that may help you manage your situation.
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