Redemption Provides Financial Freedom—For a Price

This week, I have been discussing the options available to debtors regarding car loans when filing Chapter 7 bankruptcy. On Monday, I talked about how surrendering a vehicle allows the debtor to walk away owing nothing, and on Wednesday, I discussed how reaffirming a car loan in bankruptcy allows the debtor to keep the car while remaining responsible for the debt as though he or she had never filed bankruptcy. The final option I wanted to discuss this week is the lesser-used process of redemption.

Like reaffirmation, a redemption allows the debtor to keep an automobile. However, unlike the monthly payment agreed to as part of reaffirmation, redemption involves paying the lender the current value of the car in a single lump sum. While this option will prevent the debtor from having to continue making payments, redemption can be difficult because the debtor will have to pay the full value of the vehicle in a specified period of time.

In addition to coming up with the lump sum needed to settle the debt, agreeing on a valuation with the lender can also be difficult. While vehicle valuation guides such as the Kelley Blue Book are generally accepted as sufficiently determining a vehicle’s value, a disagreement with the creditor over the vehicle’s condition may result in the debtor having to go to court and pay additional attorney fees. There may also be additional fees for the debtor if he or she uses an independent appraisal to determine the value of the car or truck.

As I said at the beginning of the week, automobiles are another asset that I’m frequently asked about by clients considering Chapter 7 or Chapter 13 bankruptcy. The good news for debtors is that they can choose the option that best suits their needs, depending on their own personal situation. If you are considering filing bankruptcy but have concerns about what will happen with your own vehicle, a Maryland or Washington DC bankruptcy attorney can help you determine whether surrender, reaffirmation or redemption best works for you.

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