Keep your stuff through bankruptcy
By Cathy Moran, California Bankruptcy Lawyer on Jan 8, 2009 in General Bankruptcy Information
Chapter 7 debtors can keep personal property they have pledged as security for a loan by paying the present value of the item, rather than the balance of the debt. I did my first motion to redeem property this month and got an order allowing the client to get clear title to two vehicles he had pledged to the credit union for 25% of the loan balance. Sweet.
The bankruptcy code requires Chapter 7 debtors to declare their intentions with respect to collateral:
- redeem,
- reaffirm, or
- surrender.
My colleagues have talked lots here about reaffirmation. When you reaffirm a debt, you essentially waive the bankruptcy discharge as to that debt. You agree to reassume all of the obligations of the original contract. This can be especially costly when the collateral is worth lots less than the debt.
When you redeem, you give the creditor in a lump sum the current value of the collateral. That’s it: it’s yours, free of the lien.
The obvious difficulty is coming up with the necessary money in a single payment. When that’s possible, redemption is a real enhancement on your fresh start.
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