If you are like most Chapter 7 debtors you owe money on the car or truck you drive, and you want to keep it. Usually, you sign a Reaffirmation Agreement with the lender, which means that you agree to keep making the payments to the lender after your bankruptcy case is over. But what happens if you owe much more than the car is worth?
How Does Redemption Work?
Redemption may be the answer. Here’s how it works. Sam Spade owes $15,000 on his 2005 Ford truck, but the fair market value of the truck is only $8,000. Sam’s attorney has told him that the bankruptcy court is unlikely to approve a reaffirmation agreement for twice the value of the truck but the Lender either wants Sam to sign a Reaffirmation Agreement for the full $15,000 or they want the truck.
Section 722 Explained
Under Section 722 of the bankruptcy code Sam has the option of paying the Lender the $8,000 fair market value of the truck but there is a catch – Sam has to pay this amount in full at the time the Motion to Redeem is approved. So where does Sam get the money to redeem his truck?
This is where a redemption financing company comes in, they loan debtors money to redeem their car or truck for fair market value. In exchange, the debtor gives the redemption financing company a lien on their vehicle and agrees to pay back the loan plus interest at an agreed-upon rate.
In order to redeem a car or truck, the debtor’s attorney has to file a Motion to Redeem with the bankruptcy court that includes specific information such as:
- The name of the current lender
- The amount owed
- The proposed fair market value of the car or truck
- The terms of the proposed loan with the redemption financing company
- And why the proposed redemption is in the best interests of the debtor
The Lender can object to the debtor’s proposed fair market value, in which case a hearing will be held so that the Bankruptcy Judge can determine the fair market value.
How Our Experienced Bankruptcy Attorneys Can Help
Redemption is not a simple process and debtors are advised to consult with experienced bankruptcy attorneys if they owe more on their car than it is worth. The Ballard Law Group has substantial experience in handling both Reaffirmation Agreements and Motions to Redeem in the Georgia bankruptcy courts.