We have discussed the reaffirmation of vehicle loans previously here. Over the last several years, specialty lenders such as 722 Redemption have popped up on the Internet offering to finance the redemption amount. If so do I have to pay a lump sum, Do I need a lawyer for that? Why Do Bankruptcies Sometimes Require the Remittance of Assets? If you want to retain the vehicle in your Chapter 7 bankruptcy, you have two remaining choices: (1) reaffirmation of the vehicle loan, or (2) redemption. It is process by which you sign, with your lender, and, when appropriate, your bankruptcy attorney, which re-obligates you to the vehicle … Your third option in a chapter 7 bankruptcy is to redeem your car. One of the options for keeping a car in a Chapter 7 Bankruptcy is to redeem the car. It is one of the benefits of the process. Chapter 7 bankruptcy is not a way to get a free car. Redemption allows you to “buy” the vehicle free and clear out of the Bankruptcy Estate you created when you filed your bankruptcy for what it is currently worth in fair-market value terms. In order to entice the lender to put up the money, the borrower agrees to give the lender a security interest in collateral – often the property that the borrower is purchasing with the money from the lender. Every car loan involves two agreements. You may owe $10,000 on your car loan, but due to depreciation, your car is worth only $5,000. Redemption is an under-utilized process in Chapter 7 because they require a little more work from the debtor filing the bankruptcy—and a little more expense in terms of attorney’s fees and court filing-fees. The foregoing provision of section 506 describes the applicable standard for determining the allowed amount of a secured claim where the debtor in a chapter 7 case seeks to redeem personal property that is subject to a perfected security interest. Redeem a Car Loan in Chap­ter 7 Bank­ruptcy December 4, 2019 by Albin Renauer If you have a car loan at the time you file for Chap­ter 7 bank­ruptcy, you have three options for deal­ing with it. Removing Bankruptcy's Automatic Stay: Past Due Car and House Payments. I own one vehicle outright and have another financed, which I am surrendering. Almost always you recommit to paying the entire loan balance, … A good settlement saves both parties the time and expense of further litigation, and that is often the outcome of a Motion to Redeem. You can only do this if the car is exempt or the trustee has "abandoned" the property (decided not to sell it). First, you will need a written appraisal of the vehicle’s value utilizing a method of valuation in compliance with current Bankruptcy Court rulings on the subject. Two of the biggest players in the market are. For more information about reaffirming the debt, instead see the article What is a Reaffirmation Agreement? Your attorney will handle this negotiation, and you will approve or reject any settlement amount. This can be a huge relief for those … This is a handy tool found in chapter 7 that allows you to pay the value of your car instead of what is owed. This field is for validation purposes and should be left unchanged. Paying the fair market value is known as redeeming, whereas continuing on with the same note is otherwise known as reaffirming. Talk with your bankruptcy attorney about whether it is feasible for you to redeem your vehicle. In other words, it will be repossessed. Then, there’s the security agreement. The judgment will require that you pay that redemption amount in a lump sum to the creditor within a fixed timeframe. In plain English that means chapter 7 debtors have the option of paying the fair market value (i.e. If you do so, as noted above, the creditor will be required to release their lien—and you will drive that car out of your bankruptcy free and clear. Paying the fair market value is known as redeeming, whereas continuing on with the same note is otherwise known as "reaffirming." At the end of the day, the benefit of redemption in Chapter 7 is that it is not something you have to ask the creditor for at all. In a Chapter 7 Bankruptcy, you have rights! Too Broke to File Bankruptcy? If you fail to make the payments as agreed, the redemption lender will have all the rights available under its security agreement and under state law to either repossess or force payment. Once your have received a 722 redemption loan and are in a Chapter 7 bankruptcy, a motion will be filed to redeem the vehicle. The difference between those two figures is often significant. What is the Redemption Option in Chapter 7 Bankruptcy. In chapter 7 bankruptcy, a client can divide a secured … In Chapter 7 bankruptcy you can "redeem" a car by paying the lender the current replacement value of the car. If the borrower does not pay, the lender has a right to repossess and sell the collateral to get back at least a portion of what is owed on the loan. Your attorney may recommend a redemption funding company. The debtor is permitted a $1,500 exemption in a car, proposed 11 U.S.C. You can redeem property in Chapter 7 bankruptcy only if you meet all of the following conditions: 1. Personal property is all property other than real estate. If you are interested in redeeming your vehicle in your Chapter 7 bankruptcy, it is something that you should discuss with your bankruptcy lawyer in advance of filing your petition so that your attorney can properly advise you of the requirements of the process, as well as the expense. Once the motion is drafted and filed by your lawyer, the lender’s own bankruptcy attorneys will have an opportunity to respond to the Motion. In simple terms redeeming your auto loan in a chapter 7 bankruptcy means paying the lender the fair market value of your vehicle, no matter what you owe. If the value is significantly lower, it might be worth your while to pay off the value or to apply for redemption financing. When you redeem the car in the bankruptcy, you pay the lender either the outstanding balance or the value of the car, whichever is less. Compare the value of your car with the amount your lender says you owe. You can’t walk into a gunfight with an empty holster. There are some loan sharks out there that are willing to lend you the money at a premium. Where is the Detroit Bankruptcy Court located? It is process by which you sign, with your lender, and, when appropriate, your bankruptcy attorney, which re-obligates you to the vehicle loan (puts you back on the hook!) You enter into a reaffirmation agreement, agreeing to repay the loan as if you had not filed bankruptcy. ... For example, if you owe $8,000 on your car loan, but the vehicle is only worth $4,000, if you pay $4,000 to redeem the car, you won't be responsible for the rest of the loan balance. The lender gives a sum of money to the borrower, and the borrower agrees to pay it back. Redemption is a process during a Chapter 7 bankruptcy case where a debtor is able to retain a vehicle by paying the secured creditor the value of the vehicle, not the total debt that is owed. Once the court approves the redemption, the new lender will pay the old lender (and will pay your attorney any agreed-upon fee for handling the redemption). even though your Chapter 7 discharge will otherwise free you from the liability. Determine how much your vehicle is worth. Once you’ve come to terms with the lender, your attorney will prepare and file with the court a Motion to Redeem. If your car is free and clear with no liens against it, the car's value becomes part of your estate. Once you apply for financing, your attorney may have to do some negotiating with the original lender on the value and the condition of your vehicle. If they file a response disagreeing with your value, you and your attorney will need to argue before the court in a sort of trial as to the value of the vehicle called an “evidentiary hearing.”. How Soon Can I Qualify for a Mortgage After Bankruptcy? I need to replace this car for my wife. Here's help. In a chapter 7 bankruptcy you will have to redeem the car. However, there is a catch. There is a little-known process in Chapter 7 bankruptcy that can often enable you to keep your upside down car (or other personal property) and get it right side up. If you are surrendering a car or other vehicle in Chapter 7 bankruptcy, that is a simple enough matter: your Michigan bankruptcy attorney checks the box for “surrender” on a section of your bankruptcy petition called the “Statement of Intention.”. The old lender will release the old lien, and you will now be liable to the new lender on your new loan. In a bankruptcy case, the lender still has the right to expect payment of the value of the vehicle. The right to redeem extends to the whole of the property, not just the debtor’s exempt interest in it. Keeping Your Car in Chapter 7 Bankruptcy. If you have a car loan at the time you file for Chap­ter 7 bank­ruptcy, can “reaf­firm” the debt, return the vehi­cle to the lender, or redeem your car loan. You can’t use the redemption process to redeem property that secures business debts, such as a car that you use for business purposes. This is the process when you surrender the car to the creditor in the Chapter 7 and buy it back from the creditor. The debt is a consumer debt on goods used for personal or household purposes. Upon receiving the official appraisal, you can contact the creditor directly and let them know that you want to redeem the car and the amount stated on the appraisal. Redeem the car by paying only how much it’s actually worth In reality, this only happens in a very small number of bankruptcy cases. Where your bankruptcy attorney does agree that redemption is a cost-effective option for you, the process of redemption is as follows. Other debtors (the people who file bankruptcy) might be concerned about continuing to pay for the property that serves as collateral on debts they owe. Two good places to look are. One of the options available to debtors in a Chapter 7 bankruptcy for keeping their car is to redeem the car. Your bankruptcy attorney will also want to advise you as to his or her opinion as to whether it is a useful process for you. The words "Automatic Order Discharging Debtor Chapter 7" almost don't feel real. In certain types of bankruptcy – specifically, Chapter 7 bankruptcy – large amounts of debt can be discharged when a case is dismissed. For example, a debtor files Chapter 7 bankruptcy case and owes $9,000 on a car valued at $5,000. Determine how much your vehicle is worth. Compare the value of your car with the amount your lender says you owe. allowed secured claim”) for the car rather than continuing on with the same note. Redemption is not a rare occurrence, but it is usually not included in the standard fee that a bankruptcy attorney charges. Not only is my bank account growing, I am now making much needed repairs to my home, and I have not had a drop of alcohol in over 2 weeks. Retaining a Vehicle in Chapter 7 Bankruptcy: Reaffirmation and Redemption. Generally, this requires Kelley Blue Book retail value, as assessed by an appraiser experienced in such valuations. Many people who file a chapter 7 bankruptcy owe much more than the value of their vehicle and continuing to make these monthly payments after a bankruptcy hinders their ability to make a fresh start. At some point, during or after the bankruptcy (depending on whether your auto loan lender takes the trouble to file a motion to lift the “automatic stay” injunction that prevents creditors from engaging in collections activity during your Chapter 7 bankruptcy), the creditor with the lien on your vehicle title will take possession of the vehicle. However, the discharge you receive at the end of your Chapter 7 bankruptcy will prevent the creditor from collecting any “deficiency” debt from you after the vehicle is repossessed and sold at auction. You need it because the next step in the process is that your bankruptcy attorney will draft and file a separate Motion to Redeem your vehicle after your Chapter 7 case is filed. Documentation needed if you are filing Bankruptcy in Michigan, discharge you receive at the end of your Chapter 7 bankruptcy. If you want to keep your vehicle in a Chapter 7 “straight bankruptcy,” your two options are “reaffirmation” and “redemption.” You can either reaffirm the debt or redeem the vehicle. Here, we’ll discuss a few of those – including the motion to redeem a vehicle in Chapter 7 bankruptcy and how it impacts your overall case. I have had my meeting of creditors already and there were no questions other than the routine yes/no. "allowed secured claim") for the car rather than continuing on with the same note. Chapter 13 bankruptcy has different options for dealing with secured debts, about which we will write in a later post. It is something you are allowed to do in Chapter 7 bankruptcy. Generally, you must pay the value to the lender in a lump sum. This can sound really good if you don’t owe much on the vehicle or if you more than the car is worth, which is true of many loans. If the creditor does file a response, it is often simply an invitation to negotiate a settled-upon redemption amount, somewhere between the values asserted by the two parties. Today was the deadline on my Ch.7, and since I was working the night shift, I decided to check Pacer when I got home. 522(d)(2). When you file a Chapter 7 bankruptcy at a time when you owe a balance on an automobile loan, you are required to state your intention as to whether you intend to retain the vehicle “securing” the loan or whether you intend to surrender it. Determine how much your vehicle is worth. This video explains the redemption process. There is, however, an alternative. If you want to keep your car, you have to take some action to keep the lender from getting your car. This often means a little more upfront expense for you as good appraisals may come with a price-tag, but, if your vehicle is worth significantly less than you owe on it and you don’t want to have to try to finance a new one post-bankruptcy with a recent Chapter 7 discharge on your credit report, it could be money well-spent. Because this requires a lump-sum payment, however, it's often not feasible for people considering bankruptcy. I am supposed to surrender the car but would like to keep it anyway as I cant afford to buy a new one yet. 722 Redemption. Chapter 7 bankruptcy is sometimes known as liquidation bankruptcy, because in a Chapter 7 case the bankruptcy trustee can take non-exempt property and sell it for the benefit of creditors. The challenge is always coming up with the lump sum redemption amount, but this is something your attorney can discuss with you in a private consultation. In plain English that means chapter 7 debtors have the option of paying the fair market value (i.e. Thus, for example, if a debtor owned a $2,000 car, subject to a $1,200 lien, the debtor could exempt his $800 interest in the car. How to Redeem a Car in Chapter 7 Determine how much your vehicle is worth. In order to keep your vehicle after a chapter 7 bankruptcy, you must continue to make your normal car payment. Generally the interest may be higher due to the risk involved for the lender. Most people who file bankruptcy will not have the ready cash necessary to make this happen. We have discussed the reaffirmation of vehicle loans previously here. How to Redeem a Car in Chapter 7. Redeem a Car Loan in Chap­ter 7 Bank­ruptcy. If you have a secured loan, such as a financed car, and you file a chapter 7 bankruptcy case, you have a few options available. Learn more about how redemption works in Chapter 7 bankruptcy. However, they are very effective, so long as they are handled properly. Redemption is an option available only in Chapter 7 bankruptcy. Replace your car today, with late model, low mileage vehicle! This option can save you quite a bit if you owe substantially more than what the property is worth, and the property meets these requirements: serves as collateral for a secured debt Essentially, redeeming a car means paying the lender the market value of the car or the outstanding balance, whichever is lower. Can I still redeem a car after discharge of Chapter 7? You have to pay the creditor in one lump sum which is difficult for most people. Chapter 7 bankruptcy allows you to keep certain exemptions that are not subject to seizure or sale. For example, if you owe $15,000 to Ford Motor Credit, but the car securing the debt is only worth […] The property is personal property. In a liquidation bankruptcy (Chapter 7), the Trustee's duty is to sell property in your estate and distribute the money to your creditors. Two good places to look are NADA and Kelley Blue Book. In this instance, your claim is that the vehicle is worth only $X.XX, as opposed to whatever the balance of the loan is. These redemption funding companies charge a relatively high interest rate, but the new loan may be worth it if redemption of the original debt saves you money over what you would pay the original lender. However, there is a catch. Of course, your attorney will explain your court’s process in more detail. If the value is significantly lower, it might be worth your while to pay off the value or to apply for redemption financing. What Happens When I File Bankruptcy After I Have Been Sued? The downside to redeeming is the creditor will require you to pay cash to buy it. What Are Nonexempt Assets in a Bankruptcy Case? by Walter Metzen | Oct 29, 2019 | Detroit Bankruptcy Blog, There are various options available when you have a vehicle loan in bankruptcy. Two good places to look are NADA and Kelley Blue Book. Tips for Choosing Do-It-Yourself Bankruptcy Software. It is also worthwhile to contact other lenders, like your credit union or the bank where you keep your deposit accounts, especially if you owed them no money that will be discharged in the bankruptcy. Therefore, if you want to keep that car, you will have to continue making payments or at least pay the creditor the value of the car. The redemption must be approved by the bankruptcy judge, but depending on your local procedures, it may not ever be necessary for you to appear in court. Redeem or Replace! I am filing chapter 7. Then again, it very well might be. But, there’s a big downside to redemption. If you wish to redeem your vehicle in a Chapter 7 bankruptcy then you need to apply for a 722 redemption loan. If you’re still making payments on a car loan, you haven’t paid for your car yet and he only way to keep the car is to pay for it. Compare the value of your car with the amount your lender says you owe. December 4, 2019 by Albin Renauer. The creditor, if hell-bent on opposing your Motion, will certainly be relying on its own appraisal to argue against your value. Since the new loan was made after you filed bankruptcy, the new loan is not discharged in the bankruptcy case. If I Filed Bankruptcy Before, How Long Before I Can File Again? You can “reaf­firm” the debt, return the car, or redeem your car loan. The creditor whose lien encumbers the vehicle title must then file a release of lien with the Michigan Secretary of State or face monetary sanctions. First, there’s the promissory note. Once the Motion is filed, however, if the creditor holding the lien files no response at all, it will  be because they recognize that your value is well-founded and fair. Discharging Debts: Car, Home and Other Secured Loans. You may get a default judgment approving the redemption. Two good places to look are NADA and Kelley Blue Book. Meaning, if you have a loan balance of $20,000 but your car’s Kelley Blue Book value is only $14,000 then you can pay the lien holder the fair market value of $14,000 and keep your car. You won’t be able to redeem your residential home or vacation house. A reaffirmation puts you back on the hook for your car loan with, typically, the same terms and balance owed under which you purchased or refinanced the vehicle. When you file Chapter 7, you have at least three choices in how you deal with your car loan: In this article, we will talk about redeeming the vehicle for its value. Home » chapter 7. chapter 7. You are off the hook for payment of the remaining loan balance. While the debt might be discharged in the bankruptcy case, the security agreement that covers the collateral is not discharged. At a minimum, the lender can expect to get back the value of the vehicle, either through sale of the collateral or payment by the borrower. One benefit of a chapter 7 bankruptcy is the option to redeem a vehicle. Any balance you owe on the loan which the vehicle secures as collateral above and beyond that fair-market value amount is then discharged in full with the rest of your dischargeable debt at the end of your Chapter 7 process. Even if you did nothing about the car during the bankruptcy and your liability under the promissory note was discharged along with your other debts, the lender would still have the right to repossess the car and sell it after the case is over. If you chose to go through a redemption financing company, many times the new lender will finance the additional attorney’s fee, also. The attorney will probably ask for an additional fee because of the time and paperwork involved in making it happen. If … People are often concerned that if they file bankruptcy they might have to surrender some of their personal assets to the court to be liquidated to pay creditors. Contact The Law Offices of Walter Metzen & Associates now to schedule a no-cost, no-obligation initial consultation. In this age of 72-month, sub-prime used vehicle loans at 20+% annual interest, it is an option worth keeping in mind. In Chapter 7, you can buy or "redeem" your secured personal property at a discount by paying its current value, not the amount you owe. Depending upon the age and condition of the vehicle, its value, and the balance of the loan and the interest-rate involved, redemption may not be a good deal. For instance, if you owe $15,000 on a car that’s only worth $5,000 at auction and surrender that car in chapter 7 bankruptcy, you will not be liable for the remaining $10,000. You can surrender the car to the lender and you will not be liable for any deficiency, you can reaffirm the debt through bankruptcy, or you can redeem the vehicle. 2. To redeem, you'd pay the trustee $5,000 to keep your vehicle free and clear. Apply Today! Debtor owns a car that is worth $10,000 but owes the bank $20,000. It is a process to consider carefully—and it is a process which attracts more attention than the further option: redemption. That sounds a little scary to many people considering bankruptcy, but in fact most people who file for Chapter 7 don’t lose any property. Valuing the Car Reaffirmation is far more common. In a redemption, you pay the creditor that has the lien on the car the current market value of the car in exchange for the title to the car. When you surrender your car in chapter 7 bankruptcy you are not liable for any deficiency you owe the lender. 3. Under chapter 7 bankruptcy, the client can use 722 Redemption to buy out the car at the current market value of $10,000. No creditors were present or represented. You can also find several online by searching for “redemption funding” or redemption financing”. 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