How to Redeem My Vehicle During Bankruptcy

Redemption can be utilized by Chapter 7 bankruptcy debtors.

Redemption of a vehicle is an option available to Chapter 7 bankruptcy debtors. A debtor interested in redeeming a vehicle will have to pay the current lien holder the fair market value of the vehicle. The debtor can either pay off the lien holder on his own or by receiving financing from another lender. A new lender may provide more affordable monthly payment terms, but the interest rate may be high, and the debtor can end up paying more money overall for the vehicle. The bankruptcy court needs to approve a debtor's request to redeem a vehicle.

Instructions

1. Draft a Motion to Redeem Property. The motion should provide a description of the property the debtor wants to redeem. The debtor can assert his right to redeem the property based on provision 11 U.S.C. §722 of the Bankruptcy Code. The motion should also state the fair market value of the property, and how the debtor will pay off the lien to the current lien holder. If the debtor has received approval for financing from another lender, the name of the lender and the loan terms should be listed in the motion.

2. Get a hearing date for the Motion to Redeem from the bankruptcy court. File the Motion to Redeem with the court. File documents verifying the vehicle's fair market value and the new lender's loan terms if the debtor will receive financing to pay off the vehicle. A copy of the motion should be submitted to the trustee assigned to the case and the current lien holder for the vehicle. The current lien holder is required to receive notice of the Motion to Redeem Property in case it wants to file an objection to the motion.

3. Appear at bankruptcy court during the designated time when the motion will be heard by the judge. Draft an order reflecting the judge's decision if the motion is granted. Submit the order to the court for the judge to sign. Once the bankruptcy judge signs the order, the current lien holder should be paid in one lump sum and subsequently release the title.

Tips & Warnings

• The debtor should consult with a bankruptcy attorney to assess whether surrendering the vehicle through the bankruptcy, reaffirming the loan terms with the current lien holder or redeeming the vehicle is in his best interests. Once the vehicle is redeemed, the debtor will be responsible for paying off the loan based on the contract signed with the new lender.

• Find out if the lien holder is willing to negotiate the terms of the payoff amount if it initially objects to the Motion to Redeem.

References

• vLex: 11 USC 722 -- Sec. 722. Redemption
• Cornell University Law School: §506 Determination of Secured Status
• The Bankruptcy Law Network: §722 Redemption Saving Thousands on Secured Assets