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What is Redemption and How Can it Help Me? St. Louis Chapter 7 Bankruptcy Basics.

Most of my Chapter 7 bankruptcy clients owe more money on their cars than what the car is actually worth. This is known as being “upside down” on the vehicle. However, most of my St. Louis bankruptcy clients need to retain their vehicles despite the fact that they are upside down.

Luckily, Chapter 7 bankruptcy offers a solution. Section 722 of the Bankruptcy Code provides that a debtor can redeem secured collateral for an amount equal to the secured portion of the loan. What this means, is that if you have a car that is worth $6000.00, subject to a $20,000.00 loan, the secured portion of the loan is only $6000.00. The remaining $14,000.00 balance is unsecured. Chapter 7 bankruptcy will allow you to redeem the vehicle for $6000.00.

Sounds great, right? So what’s the catch? Upon receiving a court order of redemption, the Chapter 7 debtor must be able to immediately pay the creditor the value of the vehicle in a lump sum. Obviously, this is an issue for most debtors since they are filing bankruptcy due to financial constraints. Not surprisingly, several companies have emerged which provide redemption loans to debtors. The downside to these loans is that the interest rate is often very high. However, a reputable redemption loan company can give you a detailed analysis of your options. Even with a higher interest rate, many Chapter 7 debtors find that they have lower monthly plan payments.

If you have questions regarding redemption, you should speak with a St. Louis Chapter 7 bankruptcy lawyer about your options.