If you wish to redeem your car loan and keep your car in Chapter 7 bankruptcy. A Chapter 7 bankruptcy car loan redemption allows you to pay the replacement value for your car. The same holds true for a loan for your truck, boat, or motorcycle. Mobile homes not attached or affixed to the land are also redeemable. Only personal property is redeemable, so you can not redeem real estate in a Chapter 7 bankruptcy.
Again, redemption is only allowable in Chapter 7 bankruptcy, and officially, you must offer a replacement (retail value). Also, sometimes, they offer trade-in values using NADA or KBB. However, only personal property is redeemable.
Chapter 7 Bankruptcy Auto Loan Redemption
Chapter 7 Bankruptcy Auto Loan RedemptionIn Chapter 13 you might be able to “cramdown” the auto loan, which is similar to a redemption. You can only “cram down” the car loan in Chapter 13 if the purchase date is more than 910 days ago, you use it commercially, or in Kentucky, if the car loan was refinanced.
When you file Chapter 7 bankruptcy in Kentucky, please take the time to consider whether or not you want the following to take place:
- Surrender your car and owe nothing. This is a clear choice if the car is a lemon.
- Reaffirm your car with the bank through the court, and continue to pay the bank the same payments. A reaffirmation agreement is only reasonable if you owe less than the auto is worth. A reaffirmation agreement in Chapter 7 bankruptcy court is a good choice if the following criteria are met:
- You owe less than the wholesale price of the car.
- The interest rate is good.
- You are on good terms with the lender. If you are on poor terms with the lender they might reaffirm and then, repossess the car after your bankruptcy is over and sue you for the deficiency.
What a 11 USC 722 Chapter 7 Bankruptcy Auto Loan Redemption is.
To redeem a car is to pay the car lender the value of the car for his car lien. A redemption is your third option with secured debt. You can pay a lump sum payment to the creditor and buy the car for what the bankruptcy code says the fair market value is. This is not the loan balance. It is a lump sum equal to what is often the NADA retail price for your year make and model with a similar condition.
The Credit Union may not like losing part of the car loan balance but you can purchase the car by making a new car loan. Your bankruptcy attorney files a motion and order in your bankruptcy case to get court approval. The section of the bankruptcy code that allows this is 11 USC 722. Paying the fair market value for the car may be difficult in a lump sum. But the bankruptcy ends your obligation to the creditor and his car loan. You file the motion to redeem the vehicle or personal property. The debt is discharged; if you redeem the auto, it is free and clear of the lien. No payments, a future with several options and no car loan company.
722 Redemption funding substituting 722 Redemption for your old lender
A 722 redemption often substitutes a new lender for the old lender, often with new terms if the same terms are unreasonable or difficult. A section 722 redemption often ends vehicle loans, which are impossible and seek your best interests. Some redemption lenders may still have high interests, but if you eliminate enough negative equity, you may keep your car and pay less on your car loan than the current financing. A redemption works primarily on the value of the car, which can be far less than the debt. A Redemption only works for personal property and Chapter 7 cases. In Chapter 13, something similar is available for clients called a cram-down. With redemption, the court and your attorney look at assets, not the agreement for the full amount.
In a Chapter 7 bankruptcy, you can always surrender a car if you determine the vehicle loan is just too much to pay for assets. Never keep your car if cant pay your vehicle loan, It is easy to replace the lender or vehicle in a Chapter 7 unless you have had multiple repossessions.
Redemption and the Bankruptcy Trustee
It is rare, but the bank may not have filed a car lien or mortgage properly. In that case, the car or home can belong to the bankruptcy Trustee. Your bankruptcy exemption in the property is allowed. You can redeem a Trustee’s interest in property for a lump sum. The Trustee may not require a lump sum as long as you redeem in payments over a short time. The Trustee is not financing a client’s vehicle in your bankruptcy. Instead, the Trustee’s job is to work for the creditors and obtain the maximum benefit he can for them. He earns a percentage of the amount he sells a nonexempt vehicle for.
To keep your car, you can pay the Trustee the money he would have gotten from a sale. This reduces his cost to sell property, and your attorney can redeem the vehicle similarly to how your attorney would redeem from any creditor. He will determine the value that is reasonable. This is subject to your attorney and the Trustee getting court approval. The money a client saves is often far better than paying the balance of a vehicle. Bankruptcy often allows you to pay less money for a vehicle than you owe for the debt.
Some lenders will work with you to lower an interest rate.
The redemption amount can be an amount the lender and debtor agree to. Often, finance companies are more open to this than credit unions. Lenders may lower a high interest rate, allow you to pay the vehicle loan over time, and pay less than the current value. The fair market value or redemption amount is often negotiable with smaller lenders. A lump sum may be impossible, and a repossession on a credit report may be more damaging than filing a bankruptcy, which often improves a low credit report score.
You should always get these agreements with a lender in writing and may want to file a redemption agreement. Remember to be flexible to get real debt relief from your bankruptcy discharge. Redemption funding by getting a new loan for your vehicle may not be your best option.
Last thoughts.
Alternatively, you can sometimes do an auto loan redemption and buy it from the bank by filing a motion with the court under Chapter 7 for the replacement value. This option is only available if you owe more than the car is worth.
Bottom line: if you are paying too much for your car you should file a redemption or surrender it. A company named 722 redemption funding in Covington, KY, will often finance it if you don’t have the cash to do the redemption. 722 redemption funding saves the average customer $8,000. (Call 722 Redemption at: 1-888-721-2800). You can keep the personal property for replacement value. That includes cars, boats, and mobile homes.
Resources for Bankruptcy
Louisville Kentucky Bankruptcy Forms
Bankruptcy Motion 722 Redemption
How to Manage Your Car Loans in Bankruptcy
Rebuilding Credit After Bankruptcy
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905
