When you file a Chapter 7 Bankruptcy, you have the option of keeping your vehicle and reaffirming the debt or surrendering. If you reaffirm the debt, you are usually stuck with the same payment and possibly high interest rate. Your car may have greatly depreciated and you may end up paying much more than it is actually worth. If you surrender the vehicle, you’ll likely have to find a new vehicle. If you take a loan out shortly after filing you will face a very high interest rate and may find yourself right back in the same vicious cycle of debt. Are there any other options? Yes!
Sometimes, we may be able to help you perform a redemption. 11 U.S.C. § 722 allows you to “redeem” a vehicle. This means you pay the fair market value of the vehicle at the time of filing instead of the outstanding balance. If you have a car that has greatly depreciated or a loan with a high interest rate, you may be able to keep your and save hundreds of dollars per month by performing a redemption.
For example: You own a car that is worth $10,000.00, but you owe $15,000.00 on the vehicle. By filing a Chapter 7 Bankruptcy and utilizing 11 U.S.C. § 722, you can pay the creditor $10,000.00 and have a clear title to the car.
Of course, many of our clients can’t come up with $10,000.00 on the spot. If they could, they probably wouldn’t be in our office. However, there are companies that will offer you a “redemption loan”. We generally send our clients to 722 redemption, though there are other companies that perform this service as well. Basically, this company will pay off your old loan, and take a security interest in your vehicle. You would then make your monthly payments to the new company, but a reduced amount as your outstanding balance has been reduced to the fair market value of the car.
Redemptions can be fantastic deals for our clients and can be used on other types of collateral besides vehicles. Make sure you discuss the possibility of a redemption with an experienced bankruptcy attorney.