When you’re short on money and short on credit, title loans may seem like they offer a quick solution. A lot of people with damaged credit and few resources turn to them when they need a fast influx of cash to cover an emergency.
What happens, however, if you have a title loan on your vehicles and you decide to file for bankruptcy? Can the lender take your car or truck?
Initially, the automatic stay will probably protect you
When someone files for bankruptcy, it triggers an “automatic stay.” This is a legal order from the court that requires your creditors to suspend most collection actions while the bankruptcy proceedings are in motion. Unless they meet an exception or the bankruptcy trustee gives the lender permission, your vehicle can’t be repossessed for the loan right away.
What happens next may depend largely on your bankruptcy
You have more than one option when you file bankruptcy, and which is right for your situation can depend on a lot of different factors, but the type of bankruptcy will have an effect on your title loan. In a Chapter 7 bankruptcy, unsecured debts and secured debts are treated differently. Unsecured debts, which typically include credit card bills, some personal loans and medical bills, are generally discharged – but a title loan isn’t unsecured.
When you obtained your title loan, you had to offer the lender your vehicle as security in case you failed to repay the debt. Typically, this means that you’ll either have to surrender your vehicle to the lender or see if you can work out some agreement to repay what you owe.
In a Chapter 13 bankruptcy, debtors typically can include title loans in their bankruptcy repayment plan, which may make it much easier to keep your vehicle. In this kind of bankruptcy, your debts are typically restructured to an affordable payment plan.
Regardless of your financial situation, it is smart to consider all your available options and seek legal guidance to make informed decisions about your financial future. If your financial situation is already pretty dire, it may even be wiser to think about filing for bankruptcy instead of resorting to high-interest title loans.