Today I would like to discuss redemption of property in a Chapter 7 bankruptcy case. Redemption is one of the most uncommon options, but it may be a good choice for you. To find out if a motion for redemption under Section 722 is the right choice for you, I strongly advise that you consult a professional bankruptcy attorney.

What is Redemption of Property in Chapter 7?

If you file for chapter 7 bankruptcy and you have a secured debt, for example on a car, you have 4 choices:

1.     You surrender the vehicle

2.     You reaffirm the debt and continue making payments

3.     Redemption under Section 722 of the Bankruptcy Code

4.     You retain the vehicle and continue to make payments

When you file a motion for redemption you can tell the judge that you are prepared to pay the fair market value of a collateral – your car for example – immediately and take full ownership of it. This option could save you a lot of money. For example: you bought a car 5 years ago for $25,000 and still owe $15,000 on it. If the present fair market value of the vehicle is only $10,000 or less, you potentially save a lot of money by redeeming it.

Now, since you are filing for bankruptcy, it is highly unlikely that you have that kind of money in cash. What has happened over the past few years when redemption of property has become more popular is that several companies now offer 722 funding. These companies will finance your redemption of the property. As you can expect, the interest rates will not be very good, but you may still save a lot of money on the long run.

For example, you could have the choice between reaffirming a debt of $15,000 with an interest rate of 12%, or redeeming the vehicle for $8,000 with an interest rate of 15%, you would be much better off with the second option.

Basically, chapter 7 bankruptcy gives you the option for redemption and buy the car for its fair market value. I recommend that you take a look at this option and discuss it with your attorney to find the best option for you.

Please contact our Sacramento office serving Carmichael at 916-313-9069 or via email at info@california-bankruptcyattorney.com for a free consultation. We may be able to help you with your problems.