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Title Loans, Registration Loans and Payday Loans

These three types of loans seem to come up a lot in bankruptcy. If you are finding the need for any of these loans, you may be on a collision course with the need to file bankruptcy.

What are these loans?

A Title loan usually refers to a type of loan one might get that secures the loan to a car or some other vehicle. The lender will take the title and record the lenders name as lien holder on the title to the vehicle. Once you have paid back the loan, the lender removes their name from the title, and you get your clean title back. If the loan is not paid or is defaulted, then the lender has a right to repossess the property. Once repossessed, the lender will sell the property to recoup as much of the loan as possible. If the proceeds are not enough to cover the loan, you are on the hook for the remainder.

A Registration loan is like a Title loan except that instead of securing the loan to your title, the lender “says” they are securing the loan to your registration. In Arizona, there is only security on a title. You can’t secure a loan to a car’s registration. Typically, if you default on a Registration loan, the lender will sue you in court in attempt to recoup their money. If the lender obtains a judgment, then they can look at wage garnishment or bank levy.

A Payday loan is an unsecured loan. Typically, the lender has the borrower sign some type of agreement that they can draft the funds from your bank account on or shortly after your payday, assuming you have direct deposit. On payday, the lender will attempt to withdraw their funds from your bank account. If you default, the lender can only sue you to recoup their money. Again, if the lender obtains a judgment against you, then wage garnishment or bank levy may be in your future.

How Do I Get Rid of These Loans in Bankruptcy?

Title loans are secured debt. Therefore, we are assuming your lender has attached their name to your title. This means that you have to pay for the loan to keep your vehicle in chapter 7 bankruptcy. In chapter 7, you may want to look at reaffirming the loan, which keeps the loan on your credit report and allows you direct communication with your lender. In chapter 13, we can lower the interest rate and spread the loan out to three to five years to pay it back in your chapter 13 plan, which substantially lowers your payment and the total amount you have to pay back.

Registration loans usually are not secured to the vehicle, so they are simply discharged or forgiven in bankruptcy. The key is to make sure before filing bankruptcy that the lender has not secured the loan to the title. Some of these loan companies will call your loan a Registration loan but it’s really a Title loan. Make sure you know the difference and which type of loan is yours.

Payday loans are unsecured, so they will always be discharged in bankruptcy. It’s important to make sure you have all of these loans noticed in your bankruptcy, so these lenders are aware you filed. These lenders will try anything including telling you their loan is not dischargeable in bankruptcy or that bankruptcy doesn’t apply to their loan to get you to continue paying. Unless your loan is secured to your property, don’t fall for it. Contact a bankruptcy lawyer to find out how your loan will be treated in bankruptcy and which chapter of bankruptcy would be best for you.