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3 min read Read Published 7 March 2023.
Written by Mia Taylor Written by Contributing Writer
Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.
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If you’re in debt or need money to pay for bills, bankruptcy may seem like a good way to gain access to cash fast. However, what if your financial problems become unmanageable, and you end up filing bankruptcy to clear up mounting debts. Which happens to your car you pledged to secure that car title loan? Based on the option you choose to take action, it might become possible to incorporate your title loan in a bankruptcy filing and get the loan dismantled or restructured to make payments more manageable. However, you could lose your vehicle if you are unable to meet loan repayment conditions. Title loans and Chapter 7 bankruptcy Chapter 7 bankruptcy is usually called liquidation. In Chapter 7 filing, unsecured debts are discharged. This includes medical debt, personal loans as well as promissory notes. As part of the process, the property you are not exempt from will be sold, and the proceeds used to repay creditors. A title loan, however, is not an unsecure loan; it’s a secured debt . If you are able to borrow money with a car title loan you give the vehicle to the lender to secure the loan. In plain language you have signed your pink slip your vehicle in exchange for a sum of money. Since it is secured loan, a title loan cannot be discharged in a Chapter 7 bankruptcy. “Although states have different laws in some cases, every secured loans remain in the same position,” says Michael Sullivan, a former personal financial consultant with Take Charge America, a non-profit financial and credit counseling agency. Since the loan is still in force, you will need to either in its entirety or work out an affordable payment plan in conjunction with the lender who owns the title loan. If neither of these options is available, you can opt to . There are also situations where the courts will allow title loans to be dealt with as part of Chapter 7 proceedings, says Lamar Hawkins, a bankruptcy attorney with Guidant Law and member of the Arizona Board of Legal Specialization’s Bankruptcy Law Advisory Commission. “The bankruptcy court does not like loans that are predatory, and title loans tend to be predatory,” says Hawkins, noting that in certain cases the court may “rewrite the loan at a market rate based upon the value of the vehicle and also have the lender be able to make regular payments, so that the borrower can retain the car and use it as the vehicle as a source of transportation.” The Bankrate tip
Be sure to keep making the payments before the time the bankruptcy case is closed to keep from repossession.
title loans as well as Chapter 13 bankruptcy Chapter 13 bankruptcy is restructuring your debts. This process includes secured debts like car title loans, and even mortgages. In Chapter 13, some unsecured debts can be granted forgiveness. If they are not, they are reorganized and have to be repaid over time. “Chapter 13 lets you make a repayment program where you pay each month into a trustee. This means that at the conclusion of the repayment plan you have either paid what you think is the fair value your car in accordance with the date on which you filed the petition … or the total owed, whichever is lesser,” says New Jersey bankruptcy lawyer Edward Hanratty. In a Chapter 13 filing, you could also be able reduce the amount of monthly installment payment you’re required to make in order to reduce the cost. If the interest rate on the title loan is high, you may also be able to lower the amount of interest you pay as part of Chapter 13. Chapter 13 process, says Dai Rosenblum, a Pennsylvania bankruptcy attorney. Although there’s the possibility of losing your vehicle in Chapter 13 bankruptcy filings, there are many options for restructuring your debt to prevent that from happening. Inform your lawyer of the title loan prior to filing bankruptcy through the assistance from an attorney it is essential to disclose all your assets and also all of your current debts and obligations, which includes your title loan. Not revealing the title loan can lead to further difficulties. “When you file bankruptcy in bankruptcy, you declare — subject to the criminal penalty of perjury that you’ve declared every asset, which includes the car, as well as every debt, even your loan on your title loan,” says Rosenblum. “Also lawyers can’t fix a problem if they don’t be aware of the issue.” Moreover, concealing the debts in bankruptcy could result in its dismissal. “Or in the most extreme scenario this could lead to prison time as a result of bankruptcy fraud” says Hanratty. “It’s safer to be secure instead of regretting it.” The final word: Car title loans can be resolved through bankruptcy, but the method by which the debt is handled will be contingent on whether you’re going to pursue Chapter 7 or Chapter 13 bankruptcy. There are options to have the debt restructured, paying total debt or transferring your vehicle back to lender. Before you take any action, consult with an attorney in bankruptcy who will help you sort through the options and decide on the best course of action.
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Written by Contributing Writer
Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to take control of their finances with concise, well-researched and well-read information that breaks down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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