Redemption of Property
When filing for bankruptcy there are a number of options to consider with regard to property. A debtor can choose to surrender property, reaffirm debt, or to redeem the collateral. Each has different advantages and disadvantages. Here we will focus on redemption of collateral. Redemption means that a debtor will make a one time lump sum payment to a creditor in the amount of the secured portion of the debt. The secured portion is determined by evaluating the fair market value, as only that is secured. When a a loan is worth more than the fair market value of the collateral a creditor is under secured and can only recover for the secured amount.
For example, lets say that a debtor has a vehicle that is worth $10,000 and the loan value is $15,000. You can determine what the unsecured portion is by subtracting the fair market value from the loan value. Here there is $5,000 of unsecured debt. To redeem this property through a bankruptcy a debtor would need to make a payment of $10,000 to the creditor. The remaining $5,000 balance on the loan would be discharged through a Chapter 7 Bankruptcy proceeding.
As mentioned previously, each of the options has certain advantages and disadvantages. The advantage to redeeming property is that a debtor can keep then keep the property, will own the property free and clear of encumbrances, and will not have any ongoing payments on the collateral. Of course, this option does require a debtor to make a lump sum payment, which may not be possible for all debtors. In the event that you cannot make that payment there are financers that offer redemption loans specifically for this purpose. Choosing to finance a redemption will mean that a debtor has an ongoing payment even after filing for bankruptcy. When considering this option, particularly with financing, debtors should make sure that they can truly afford the payment or the debtor may be at risk of repossession at a later date. In some cases financing a redemption is a good choice because the terms of the loan may be better than the existing loan terms.
If you still have questions you can schedule an appointment with a St. Louis Bankruptcy Attorney today to discuss the available options.