Yes, it's possible to include a title loan when filing for bankruptcy.
However, the outcome depends on your current financial situation and the type of bankruptcy you file. Depending on which filing you choose, you may be granted a new payment plan for your title loan with improved terms or you may have to give up your car.
Here’s how bankruptcy for title loans work. 👨🏫
Declaring bankruptcy is one option people consider when they’re neck-deep in debt. This gives you a more convenient way to handle debts too big to manage, and title loans can fall into the “big debt” category.
Learn: Can you refinance a title loan?
There are two types of bankruptcy one can file — Chapter 7 and Chapter 13. What happens to your car and your title loan depends on which option you choose.
In a Chapter 7 bankruptcy (often referred to as "liquidation"), a debtor must sell some of their assets to cover their debts. However, with this type of bankruptcy filing, unsecured debts can be discharged whereas secured debts often cannot; this means the repercussion for not paying your title loan (i.e., losing your car) can still be enforced.[1]
Though — if you're not ready to bid farewell to your wheels — with this type of bankruptcy filing, you have the option to repay your title loan lender with the proceeds from the liquidation of your other assets. But, if you can’t do this, saving your vehicle from being repossessed will be difficult. 😟
Learn: Can a title loan company take your car?
Chapter 13 bankruptcy is different. This option involves getting a more convenient repayment plan. With this type of bankruptcy filing, your repayment is divided over a three to five year period (depending on how much you owe) and you are typically only asked to repay a portion of your debts under court supervision. This can do wonders with shrinking your monthly obligation to your title loan lender and making repayment more manageable.[2]
But, keep in mind that, filing bankruptcy may not be an optimal solution for resolving your title loan woes. This legal procedure is very serious. Bankruptcy has long-term effects on your credit and remains on your credit history for 7 to 10 years — hindering your future creditworthiness and ability to obtain credit at favorable rates, if you can secure credit at all.[3]
Learn: Do title loans go on your credit?
Sometimes bankruptcy is indeed the right decision, but it should be treated as a last resort if you’re struggling to pay off a title loan. Due to its long-term consequences, it's best to consult with a legal professional before making any final decisions. Remember, dealing with money troubles takes time and thought, so be patient with yourself. 👍😊
