In most cases, getting a title loan while in bankruptcy isn’t allowed. It can be challenging to take on any new debt while you’re going through the bankruptcy process as most lenders can see your recent credit history. There may be a few circumstances where you can a small loan of $200 or less while in bankruptcy, but a title loan lender will not receptive to offering $500 or more if you can walk away from that debt after the bankruptcy proceedings. Read on to find out more about what happens during a Chapter 13 Bankruptcy, why you probably can't get a title loan while dealing with a bankruptcy and if there are exceptions where you could get a title loan.
What Happens During Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is when someone with a regular income creates a plan to repay some or all of their debts over a set period of time, usually three to five years.
To start the process, you file a petition for Chapter 13 bankruptcy with your jurisdiction’s bankruptcy court.
You then will work with an attorney to create a repayment plan. This will outline how you will repay the debts over the coming years, and you’ll submit this plan to the court, where it has to be approved.
When you file for this type of bankruptcy, an automatic stay starts, so creditors are not allowed to take collection action during this time without the court's permission.
You attend a creditor meeting, called a 341 meeting. It will include you and your attorney, your bankruptcy trustee, and creditors who choose to attend so they can discuss your situation and proposed plan for repayment.
Then, the court will hold a confirmation hearing to review your repayment plan. If it’s approved, it will be binding on you and your creditors. From there, you will make regular payments to the bankruptcy trustee, and those payments will be distributed to creditors.
After you complete your payment, you may receive a discharge of remaining eligible debts, which will release you from personal liability for the debts. You might also have to attend a financial management course as part of a discharge. When your repayment plan is complete, along with any other requirements, the court will close the case.
Can I Get a Title Loan While in Chapter 13?
As mentioned, several problems can come with trying to get a title loan during Chapter 13 bankruptcy, including:
- In this type of bankruptcy, you must pay off your debts gradually, and taking on new debt during this time could violate your plan terms. Getting a title loan would create a new financial responsibility that is not integrated into your original repayment schedule.
- When you file for bankruptcy, new financial transactions, including getting a title loan, could violate this and may mean legal consequences because of the automatic stay it triggers.
- During Chapter 13 bankruptcy, the court oversees your finances and tries to protect your assets. If you took out a loan that puts your vehicle at risk, following the terms of your plan could be problematic because these loans use your vehicle as collateral.
Additionally, any significant financial transactions or changes to your financial situation during this type of bankruptcy may require approval from the bankruptcy court. Getting a title loan would probably not be approved by the court.
Can You Get Title Loans While in Bankruptcy of Other Types?
Chapter 13 isn’t the only type of bankruptcy—Chapter 7 is another. Technically, in some circumstances, it may be possible to get a title loan, but there will be hurdles.
Chapter 7 bankruptcy also triggers an automatic stay, and during this type of bankruptcy, the court oversees the liquidation of assets to repay your creditors. Taking out a title loan that puts your vehicle at risk would complicate your bankruptcy. You would also need approval from the court.
In a Chapter 7 bankruptcy, some types of debt are discharged, so you’re no longer liable for them. With that being said, if you intentionally took on new debt right before filing for bankruptcy, including a title loan, it could bring up concerns about abuse or fraud and that would negatively affect your ability to have your debts discharged.
If you are thinking about getting a title loan during a bankruptcy, while it might be technically possible in rare cases, it’s discouraged. Bankruptcy is meant to be a way to address your financial challenges and build a fresh start. Taking on a new debt, especially on a title loan, doesn’t necessarily align with bankruptcy goals.
How Long After a Bankruptcy Can You Get a Title Loan?
After bankruptcy, you may be able to get a title loan, but it would need be a standard car collateral loan and not a salvage title loan or title loan where you don't verify income. In a Chapter 13 bankruptcy, you have to complete your repayment plan and receive a discharge to become eligible for a title loan. The process can take several years.
Most of your debts end up being discharged within a few months of filing for a Chapter 7 bankruptcy. At that point, you might technically be able to receive a title loan, but a lender could see your bankruptcy as a risk factor and might not approve you.
It’s important to consider your financial goals and explore your options when you take on a new debt close to bankruptcy, and in some cases, if you’re in the midst of proceedings, a new debt like a title loan may not be an option.