Your Car and Redemption!

When most people start the process of considering bankruptcy, they generally have two initial concerns: (1) what happens to my house?; and (2) what happens with my car?  This is why several of our prior posts deal with homes and cars.

For today's topic, we return to cars, and one option that is available to those who file for Chapter 7 Bankruptcy.  It is called "Redemption".  Dictionary.com defines Redemption as "to repurchase, as of something sold."  That definition holds true in a bankruptcy context. 

Section 722 of the Bankruptcy Code states: "An individual debtor may, whether or not the debtor has waived the right to redeem under this section, redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of this title or has been abandoned under section 554 of this title, by paying the holder of such lien the amount of the allowed secured claim of such holder that is secured by such lien in full at the time of redemption."

So, what does this mean?  It means, if you use an exemption to protect some personal asset, such as a car, appliance, or furniture, and that property has a lien against it, then you can pay the lender for the value of that property and keep it through a bankruptcy.

You're chances go up,
if you have red hair.

Here's an example - Let's say you own a car with a $10,000.00 loan on it, which you protect with your automobile exemption, but the car is only worth $5,000.00.  In a Chapter 7, you can pay your lender $5,000.00 to keep the car and the prior loan gets discharged.  This sounds like quite a deal, but keep in mind that $5,000.00 needs to be paid in one lump sum.  

Where would one come up with $5,000.00?  Here are a few options: (i) get a loan from a relative or friend, (ii) pull funds from an exempt retirement account, (iii) sell exempt assets, or (iv) get a new loan to pay off the car, based on what the car is actually worth, not what you owe.  If you don't have Daddy Warbucks as a family member or friend, then you might be wondering who on earth would give you a loan when you've just filed for bankruptcy.  Good question, but there's an answer - 722Redemption.com.

722Redemption.com is a company (backed by US Bank) that will work with you, us as your BK attorneys, and your current lender to "redeem" your vehicle.  Keep in mind that their willingness to issue the loan comes at a higher interest rate (often in the 20% -25% rage), so these types of redemption loans do not always make good financial sense.

If you have any questions about redemption, or how it might benefit you, please give us a call to set up your free consultation today!