Redemption allows an individual debtor to pay a lump sum payment to redeem tangible personal property, intended primarily for personal, family, or household use, from a lien.
The monies are paid to the lien holder to release the lien. Under Chapter 7 Bankruptcy the debtor must pay the fair market value for the claim (not the amount outlined in the contract or the loan amount) (11 U.S.C. Section 722). The situation is common for debtors who have financed a motorized vehicle and due to the depreciation of the car are allowed to pay the secured creditor (through the Chapter 7 Bankruptcy redemption process) the market value of the lien. This action forces the creditor to release the lien and allows the debtor to pay less than the full amount of the car loan.
Redemption is not allowed in Chapter 13 Bankruptcy, and the debtor may or may not have the necessary funds to pay a creditor a large lump sum payment. Debtors may be able to borrow the money from family or friends, or in some cases, borrow the money from another creditor. Creditors who loan money for these specific circumstances will charge high interest rates, but the debtor may be able to save money each month on their car payment or in interest payments for the duration of the loan. Bankruptcy lawyers can evaluate the secured claims of the debtor and determine if redemption is a good financial decision.
More Help on Redemption
- Creditor - Creditors can include businesses, individuals, organizations or the United State\'s government who is owed money for services or products provided to a second party in return for payment. - read more
- Lien - A Lien puts a hold on real or personal property and allows the property to be held as collateral for debt payments or services which are owed to another lender. - read more