A title loan often survives bankruptcy, and you may have to make payment arrangements or surrender the vehicle to the creditor after the bankruptcy is discharged.
- This is because title loans are usually SECURED against the vehicle
At present, it is illegal to make title loans against consumer vehicles in Minnesota.
This is why there are so many title lenders in Hudson, Wisconsin and other cities on the Minnesota border. Loans made in other states are, however, still valid in Minnesota.
HOW DO I KNOW IF MY TITLE LOAN IS SECURED?
In Minnesota, a creditor must notate its security interest on your car title in order to have a lien against the car.
- Look at the left-hand part of your car title, it will have the name of the lien holder, if any
- Bought the car with a car loan, then the financing company will have its name there
- Take a title loan, then the title lender’s name should appear there
If the title lender’s name is not there, then it is possible that they do not have a valid lien.
An experienced bankruptcy attorney will be able to figure this out for you.
If they don’t have a valid lien, then the debt will be dischargeable, but there is a possibility that the bankruptcy trustee will be able to takeover the loan and force you to pay it. Again, your attorney will be able to figure out whether or not this will happen in your case.
WHAT HAPPENS IF THE TITLE LOAN IS SECURED?
- If the title loan is secured, then the lien will survive the bankruptcy.
This means that if you don’t make payments until the loan is paid off, then the title loan company can come and repossess the vehicle.
Normally after a repossession the creditor sells the vehicle at auction, and then charges the unpaid balance to the borrower.
This unpaid balance is called a deficiency judgment.
- They cannot, however, get a deficiency judgment against you after repossessing the vehicle, as bankruptcy destroys the ability of a creditor to get a deficiency judgment.
If the creditor already has a deficiency judgment, then the bankruptcy will discharge it.
SPECIAL RULE FOR CHAPTER 13
If you are filing under Chapter 13 bankruptcy, then you may be able to change the terms of a title loan.
- In Chapter 13, you can lower the principal balance of the loan to the value of the vehicle, and lower the interest rate to market rate
The market rate for this is 5.5% as of October 2013. You will then pay off the title loan through the Chapter 13 plan, and have the vehicle free and clear of that loan at the end of the case.
- This does not work for car loans that you took out to buy the vehicle, unless the loan is more than three years old.
A loan taken to buy a vehicle is called a purchase money security interest.
A loan taken against a vehicle that you already own is called a non-purchase money security interest. Title loans are non-purchase money security interests.
WHAT TO DO NEXT
If you’re concerned about your car title loan and bankruptcy in Minnesota, then why not not speak to us now at 612.824.4357?
We’ll give you all the help and advice you need.
We’re looking forward to helping you.