What is redemption?

When you file a Chapter 7 bankruptcy, one of your options for keeping collateral, like a car, that secures a loan is to do what is called redemption. Redemption is based on the premise that if the collateral was returned to the creditor, all they would be able to recover is the market value of the collateral when they sell it. Since the bankruptcy would prevent them from recovering any additional money from you, the recovery is limited to what they can sell the collateral for. The Bankruptcy Code allows you to redeem the collateral by paying the creditor the current market value of the collateral in full satisfaction of their lien. However, you have to make one lump sum payment to the creditor. Most people do not have the ability to make a very large lump sum payment on something like a car but there are creditors who will loan you the money necessary to redeem a car under certain circumstances.

If you have a car that is worth far less than what you owe on it, redemption may be a good option for you instead of reaffirming a debt. Don't agree to pay back far more than you have to in order to keep a car.

For more information or to request an appointment, please contact Hampton Roads Legal Services at (757) 276-6555 to see if redemption is a good option for you!

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney