One of the most frequently asked questions of prospective filers is what happens to car title loans associated with their vehicles and if they can keep the cars when the bankruptcy is completed. Most filers are already aware that they can save their home, but they are unsure about the status of their vehicle ownership once the bankruptcy discharge is received. It’s an interesting question.
When you get a bankruptcy attorney, the discussion will often begins with vehicles. Many bankruptcy filers have a vehicle that is paid in full. In this case, the attorney will probably first make note of the year, make and model of the vehicle and consult a reputable source to obtain fair market value for the car. Then the conversation will turn to debts and in listing all the debts, car title loans will often pop up.
A car title loan means that you borrowed money from a lender offering your vehicle as security for the debt. In fact, when obtaining a car title loan, you actually sign over the vehicle (or the pink slip) to the lender in exchange for money.
When this is the case, you don’t have a vehicle paid in full. You may think you are the owner of the vehicle, but you aren’t. You owned it prior to the car title loan, but you can’t own a vehicle unless you have the title. The day you sign the title over to someone else, you gave up ownership. To sell it or transfer ownership, you would need to get the title back first. To do that, you are required to pay off the car title loan. That’s the entire point.
Listing the title loan in your bankruptcy paperwork makes it clear that your vehicle has no equity. This is helpful because you are limited on how much vehicle equity you can protect in a bankruptcy. By showing that the vehicle is worth less or equal to the amount owed on the vehicle makes it more likely that you will be able to keep it and continue paying on the vehicle after the bankruptcy closes. If the payment is affordable this may be the best scenario for you.
Helpful Tip: Car title lenders are often aggressive and will quickly repossess a vehicle associate with a car title loan in default, so make sure to stay current on the car title loan payments before, during and after your bankruptcy case is closed.