Redemption – buying your car back for a discount.

15 Feb Redemption – buying your car back for a discount.

If you can put your hands on a little money – maybe from your friends, family or relatives – maybe from otherwise exempt funds – you may have an opportunity to pay off your car loan at a big discount and keep your car.

The way to do this is called redemption.

The idea of redemption is that your car has a known value as of the time of your bankruptcy case. It has a relatively low value at an auto auction. It has a rather high value at a used car dealer. It has an intermediate value to a private party or in trade-in. But it has some ascertainable value.

Almost always, the car is worth less than the amount you still owe on it. We call that “upside-down”. If you reaffirm your debt, you’ll have to pay the entire balance over the term of the loan. But if you pay the amount that the car is worth to the lender – you’ll be able to redeem the car and keep it free and clear. It’s a good deal for you. And it gives the car finance company more than it would get if it auctioned the car off and got nothing for its deficiency from you because of your bankruptcy.

If you can’t get money from friends, family or relatives or an otherwise exempt source of funds, you still might be able to redeem. There are companies which make redemption loans on late model cars. They are not necessarily the best interest rates. But you will save money because you’ll be paying on a much smaller amount of money.

So consider redemption as an option when filing your bankruptcy case.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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