Can I File Bankruptcy in Ohio on Payday Loans or Title Loans in Columbus, Ohio?

It’s estimated that 1 out of every 10 adults in Ohio have taken out a payday loan. The state also has the highest payday loan prices in the country. While the high rate of title and payday loans in the state is unlikely to be a top reason, Ohio also ranks near the top in the United States for bankruptcy filings with 322 per 100,000 people every year.

Many people file for bankruptcy due to unaffordable levels of medical debt, divorce, job loss, and other situations beyond their control. Still, high levels of debt — including payday loans and secured loans like title loans — account for many personal bankruptcies.

Not all types of debt can be discharged in bankruptcy in Ohio. Credit card debt, medical debt, and even mortgage debt are commonly discharged, but it’s essential to understand how title loans and payday loans are treated before filing for bankruptcy.

Bankruptcy and Car Title Loans

A title loan is a secured loan in which a consumer borrows money and uses the title of their vehicle as collateral. If the loan goes into default, the lender can repossess the vehicle. As with other secured debts, title loans can be discharged in bankruptcy.

To ensure a car title loan is discharged, it’s important that the loan is included in the Chapter 7 bankruptcy paperwork. With a title loan, the vehicle most likely has no equity. When the borrower can show that the vehicle is worth less than or the same as the amount owed, the borrower can usually keep the car as long as the title loan payments continue after bankruptcy. The two other options are redeeming the vehicle or surrendering it. Redeeming requires paying off the balance all at once, which can be very difficult during the bankruptcy process. Surrendering the vehicle will wipe out the debt completely.

With a Chapter 13 bankruptcy, there is another option to keep the vehicle. If the balance of the title loan exceeds the value of the car, a “cram down” may be possible. This reduces the balance of the loan to the value of the vehicle and gives the consumer up to 5 years to repay the loan with a low, fixed interest rate as part of the bankruptcy repayment plan.

Payday Loans and Bankruptcy Discharge

Payday loans are short-term, unsecured loans that usually have a term of 2 weeks. These loans often trap consumers in a cycle of debt as the interest rate is very high and, when the borrower cannot pay the loan back in two weeks, they renew the loan and the balance grows.

Payday loans can usually be discharged in Chapter 7 bankruptcy. The loans are treated like any other type of unsecured debt. With a Chapter 13 bankruptcy, it receives the same treatment as other unsecured creditors, which means borrowers typically pay just a very small portion of the debt.

There are special considerations when including a payday loan in bankruptcy. If the loan or cash advance was made within 70-90 days of filing for bankruptcy, the creditor may challenge the discharge of the debt by arguing the consumer did not have any intentions of repaying the loan. If the court sides with the creditor, the loan cannot be discharged. The good news is these challenges are rarely successful because bankruptcy courts tend to have a negative view of payday lending practices and understand that consumers using these loans are struggling financially. Payday lenders are usually required to prove the consumer acted with fraudulent intent.