What is Bankruptcy Redemption?
Redemption is authorized by Section 722 of the Bankruptcy Code. Redemption allows someone in Chapter 7 to keep personal property by paying the creditor the Fair Market Value of the item rather than the amount owed on the loan. It is most commonly used for cars.
For example, say your car is worth $10,000 but you owe $15,000 to Capital One Auto Finance on your current car loan. Redemption would allow you to give Capital One $10,000 and they would have to release the title.
Where do I get the money for a Redemption?
If you are filing bankruptcy, you probably don’t have $10k sitting around. Some lenders specialize in precisely these situations and finance these deals. So the answer is that you get a new loan for $10k and eliminate the old $15k loan. The attorneys at Perez & Perez are experienced in handling redemption situations and can assist you in locating a reputable lender to finance a redemption for you.
Who decides what the car is worth in a Redemption?
We start with Blue Book type valuations. Your attorney will then work to negotiate the best possible redemption value for you with your existing lender. If we can’t settle on a reasonable figure, ultimately the bankruptcy judge decides after a trial.
Should I Redeem my Car?
There can be considerable savings on your car loan if you qualify to redeem it. The lenders we work with will show you a side-by-side comparison of keeping your current loan vs. doing the redemption. They will only approve you for a redemption loan if it saves you money, so you can be confident that you will save money on your loan.
How do I know if I qualify for Redemption?
The first step is to make sure you qualify for Chapter 7 bankruptcy. Ask one of our attorneys for more information, and we will discuss the redemption option as part of the discussion about Chapter 7. Contact us today!