Section 722: Redemption in Bankruptcy

When you file a bankruptcy you have three legal options regarding your personal property secured debts. First, you may surrender your interest in the property and give it back to the creditor. Second, you may reaffirm your contract with the creditor and continue to abide by the original contract (or revised contract). The original contract may have been financially burdensome for reasons evidenced by your filing of bankruptcy, so you might not wish to agree to the same contract. The third option is redemption. Redemption offers a viable method for people to retain property with contracts terms that were less than favorable. Redemption can potentially save an individual thousands of dollars by reducing their loan length and interest rate.Section 722 of the Federal Bankruptcy Code outlines a procedure that in certain situations allows for bankruptcy filers to satisfy a secured claim for personal property primarily used for household purposes (vehicles, furniture, appliances, etc.) by a one-time lump sum payment equal to the confirmed value of the collateral. The purpose of the redemption process was to prevent secured creditors from receiving a disproportional sum of money relative to the current value of the collateral. In order for a redemption to take place, you must first hire an experienced bankruptcy attorney (for help finding one check out http://www.bankruptcyhome.com/choosinganattorney.htm) to get you a court order telling the secured creditor to release its lien in exchange for a lump sum payment equal to the current market value of the collateral. Under the new bankruptcy law redemption can be somewhat more difficult due to a new bankruptcy stipulation that does not allow for the value of personal property, purchased within 910 days from the date of file, to be crammed down. For example in a cram down situation you would have $20,000 left on a loan for a vehicle and it is only worth $8,000 now. This claim would be bifurcated into a $8,000 secured claim and a $12,000 unsecured claim. The property may then be redeemed for the current value of the vehicle ($8,000). This would result in a new $8,000 secured vehicle loan and the remaining $12,000 unsecured portion would be discharged upon the completion of your bankruptcy. However, Bankruptcy filers are no longer allowed to redeem for less than the claim amount if the property was purchased less than 910 days from the date of file. For more info on recent bankruptcy law changes go to http://www.bankruptcyhome.com/bankruptcy-certification.htmThe clear advantage to exercising the redemption process is that you can retain your personal property and pay less to a creditor than they would otherwise be entitled to receive. However, considering the new 910 day rule, situations in which it will be in a bankruptcy filers' best interest to exercise this option will become fewer and farther between. Many times people that are 100 current on their vehicle loan would still stand to benefit from redemption rather than reaffirming the original contract. Redemption is the most often overlooked legal option to retain property and save bankruptcy filers thousands of dollars. For this reason it is absolutely imperative to hire a qualified bankruptcy attorney.

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