Can I Discharge a Title Loan in Bankruptcy?

If you’re struggling to pay unexpected expenses or have creditors hounding you for debt payments, you may take out a title loan to help make ends meet. This can be a smart move if you own your car outright and expect to pay off the loan quickly. But if you’re not careful, or more unforeseen financial trouble comes your way, it may become harder than ever to pay off your title loan and other debts.

In this case, you may consider filing for bankruptcy. Can you discharge a title loan this way? Probably not, but bankruptcy can help make payments easier and more affordable. Here’s how.

Secured vs. Unsecured Debt

Bankruptcy addresses unsecured debts, such as credit cards, medical bills, and personal loans. These are not backed by collateral. However, a title loan is a form of secured debt, using your car as collateral to ensure you make payments. The creditor puts a lien on the car when you take out a loan, giving them the right to repossess your vehicle if you default. The creditor may even sell your car at an auction to raise funds and recoup their losses.

Chapter 7 Bankruptcy and Title Loans

You will most likely not be able to discharge a title loan in Chapter 7 bankruptcy, but that doesn’t mean filing is useless. If you have a lot of other unsecured debts, those can be discharged when you file, freeing up more of your money to pay off secured debts like your title loan. This may be just what you need to prevent having your car repossessed.

Chapter 13 Bankruptcy and Title Loans

Not everyone qualifies for Chapter 7 bankruptcy, but there’s another option called Chapter 13. This could be the right choice if you have a higher income and assets you hope to keep, such as your car, rather than liquidating them to pay your creditors.

Under Chapter 13, you get help restructuring your debts into an affordable repayment plan. You may be eligible to lower the principal balance of your title loan to the value of the vehicle and lower the interest to the current market rate. This alteration to the loan terms is called a cramdown.

Make a single monthly payment for all your debts over the next three to five years, and many of the debts remaining at the end of the repayment period will be discharged. This could be the ideal way to get a handle on your debts, keep your car, and still have money left over to pay for basic living expenses.

Learn More About Title Loans

For the lowest interest rates and best repayment terms on title loans in Texas, turn to VIP Title Loans. We provide instant funds once your application is approved, with no credit check required! To learn more about applying, please call us at 817-265-2274, fill out our online contact form, or visit one of our five locations in the DFW Metroplex.