Car Title Loan Discharged in Bankruptcy - Read Here

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Can Car Title Loan be Discharged in Bankruptcy in California?

Often in dire situations, people resort to dire measures. Taking a car title loan is a Hail Mary for borrowers as the fees and interest rate is high. But since people are generally out of options when they choose this, it doesn’t really matter. Car title loans are short-term loans which are given on a car which you own (no car loan exists on the vehicle). You need to provide your car title and a copy of your car keys to leave as security. The lender provides you money at the same time with a fixed time frame (generally 30 days) to return it. In case you are unable to pay after 30 days, a rollover of another 30 days is provided. In case you default on the loan, the lender can repossess your vehicle and you will be also be held responsible for the repossession fees.

Since car title lenders don’t opt for a credit check and provide cash the same day, hence, it is a lucrative deal. However, these loans push you further into debt. Car lenders on an average lend you 26% of your car’s value. They usually make a lot of money, if they get the returns or if they need to repossess and sell the car. When you take a car title loan and you file for bankrupt, Dallas based law firm says, the fate of your car title depends on the type of bankruptcy you file for.

The fate of car title loan in Chapter 7 bankruptcy

In chapter 7 bankruptcy, your assets are divided into an exempted and non-exempt category. You can choose between federal or state exemptions to protect your property. The non-exempt assets are sold off and the money is used to pay your creditors. Any unsecured debts which remain after the process are discharged. However, since a car title loan is a secured loan, it cannot be discharged. Chapter 7 offers a chance to “redeem” any secured debt. When you redeem your car title loan, you need to pay the market value in one lump sum. If you owe more than the market value of the vehicle, the remaining amount is discharged. However, in most cases, debtors find it difficult to arrange the lump sum money to redeem the debt. There are companies which specialize in fund redemption. You can contact bankruptcy attorneys at 888-297-6203 and discuss the issue at hand.

Another option available is to “reaffirm” your debt. When you do so, you agree to the debt beyond your bankruptcy. You need to continue making regular payments on it until your debt is paid off. It is important to note that a reaffirmed debt cannot be discharged in any future bankruptcy; you have to pay it off.

In case, either of the option mentioned above does not suit you, you can sell the car before filing for bankruptcy and use the money to repay the title loan debt. In case, selling it won’t fetch much money, you can surrender it to the title loan company.

If you file for bankruptcy, you can prevent yourself from paying any deficiency for the car, when it is sold at an auction. Post-bankruptcy discharge, you won’t be held liable for any deficiencies. If you opt for bankruptcy without mentioning title loan debt, your car will be repossessed at the end of your bankruptcy and sold. If it sells for less than your debt, you will be liable for the deficiency.

What happens to car title loans in Chapter 13 bankruptcy?

Since chapter 13 bankruptcy has a repayment plan through which you can repay your creditors over a 3-5 years’ timeframe, you can make your title loan payments through it. Similar to chapter 7, you can keep your car if you pay the market value. The advantage over chapter 7 is that instead of making lump sum payment, you can continue making small payments over a period of time, thereby easing the load on your pocket.

If however, you wish to keep your car without filing for bankruptcy, it would be ideal if you avoid taking a car title loan. Since you require your car for proper day-to-day functioning, opting for a car title loan will further drag you down the road of debt. Car title loans are somewhat similar to payday lending but much less regulated by law. Since they are secured debts, you do not have the respite of getting them discharged in the bankruptcy process.

Paying off title loan using a credit card is strictly unadvised. Most bankruptcy trustees will be able to spot the conversion of a secured debt into an unsecured one in the hope to get it discharged during bankruptcy. Such activities are considered fraudulent and may lead to the dismissal of your bankruptcy case. Any transaction made over $600 to any creditor, 90 days prior to a bankruptcy filing can be reversed by bankruptcy trustees. You can find out about your state’s public benefits for cash assistance to manage your expenses instead of opting for a car title loan. Consult a bankruptcy attorney to get sound advice regarding the entire bankruptcy process before taking any decision.