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What happens to title loans in Chapter 7 bankruptcy?

On Behalf of | Mar 10, 2023 | Bankruptcy |

Individuals who are considering bankruptcy may hold various types of debt and often wonder how these different debt types might be dealt with through the bankruptcy process. A car title loan is one type of debt that many Michigan car owners hold and have questions about when going into this process. Here are the answers to a few common questions about title loans and Chapter 7 bankruptcy.

Can a title loan be discharged as part of Chapter 7 bankruptcy?

A title loan is a secured loan, as a vehicle is signed over as collateral to be given to the lender if the loan defaults. Therefore, in a Chapter 7 filing, this debt typically cannot be discharged. A borrower therefore must repay this debt fully, negotiate a payment plan or surrender the vehicle.

Are there any circumstances where a title loan can be discharged?

Yes, there are some situations where this can be an option. For example, the title loan may be seen by the court as predatory. If this is the case, the court may revise the terms of the loan to reflect the vehicle’s market rate and allow the filer to maintain his or her mode of transportation.

Since Chapter 13 bankruptcy involves restructuring debt, there is sometimes more room for movement with title loans in this type of process. For example, they may be able to lower the interest on the loan or reconsider the loan based on the car’s fair market value. The type of debt one holds and one’s ability to repay incrementally are among the considerations to keep in mind when deciding what type of bankruptcy to file. This decision is a serious one and can be discussed with a Michigan bankruptcy attorney for a more complete understanding of differences and possible outcomes.


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