Chapter 7- 722 Redemption
Keeping a reliable vehicle for most debtors is important to obtaining a fresh start after bankruptcy. There are several options for keeping your vehicle during and after a bankruptcy case has been filed.
722 Redemption is an important option that can allow you to reduce the amout you owe on your vehicle. In a Chapter 7 bankruptcy you can obtain a 722 redemption, which allows you to reduce the balance of your current vehicle loan to the current market value of the vehicle. This can be a very useful option since most vehicles have depreciated substantially below what is owed on the car loan.
Under 722 redemption you can seek a court order that allows you to pay your car loan company a lump sump equal to the market value of your vehicle. This means that if your car loan is $20,000 and the market value of your vehicle is $15,000, 722 redemption court approval allows you to pay off your vehicle by giving your car loan company a lump sump of $15,000. In most instances this can save you money since the market value of a vehicle in most situations is lower that what is currently owed on the vehicle. Of course, most people who are going through bankruptcy do not have a lump sum amount to pay off their vehicles. One option to this problem is to seek a company that works on 722 redemptions, who will finance the lump sump payment.
Financing or Obtaining a 722 Redemption Loan
722 Redemption loans are available through different sources which include banks, credit unions or you may simply wish to obtain a personal loan through friends or relatives. Below are a few companies that offer 722 redemption loans:
US Bank: http://www.722redemption.com/
Fresh Start Loans http://www.freshstartloans.com/
Unfortunately most of the loans offered as 722 redemption loans have high interest rates that are not always in your best interest. It is important that you review the terms of the 722 redemption loan to determine whether the reduced loan balance still remains beneficial if the interest rate is increased. The loan may still remain beneficial if the decreased loan balance is substantial enough to decrease your monthly payments and reduce the payment period.
You will need to apply for a 722 redemption loan through one of these companies prior to a motion being submitted to the court. The loan company will review your situation and determine first whether they are willing to offer you a 722 redemption loan. If you are approved for a 722 redemption loan then a 722 Redemption Motion is filed in court.
How Does 722 Redemption Work?
The bankruptcy code allows you to pay a lump sum payment to redeem personal property from a secured lien holder. You must pay the retail value of the item in one lump sum and not over a period of time. Redemption is most commonly used for vehicles, but can be used for jewelry, furniture, and electronics. You cannot use redemption to lower the value of your home, as it only applies to personal property and not to real estate.
Under 11 USC 722 of the Bankruptcy Code you may redeem tangible personal property from a lien through paying the secured creditor a lump sum in a Chapter 7 Bankruptcy. The secured creditor should then release the lien held on the secured property. In order for 722 redemptions to apply the property must be:
- Tangible personal property intended primarily for personal, family or household use.
- Items that Generally Qualify
- Vehicles, Household Furniture, Household Appliance, Tools, Jewelry
- Pay the secured claim in a lump sum payment
- The lump sum payment that is required is based on the retail value.
- Generally for a vehicle it is based on the retail value provided by Edmunds, Kelley Blue Book or NADA.
If you wish to redeem your vehicle in a Chapter 7 bankruptcy then you need to apply for a 722 redemption loan. Generally the interest may be higher due to the risk involved for the lender. Once your have received a 722 redemption loan and are in a Chapter 7 bankruptcy, a motion will be filed to redeem the vehicle. If the motion is granted by the court then the secured creditor will be paid a lump sump amount based on the retail value of the vehicle. The secured creditor must then release the lien held on the vehicle.
Your car loan company may not agree with the basis of your valuation and may object to your motion by filing an answer that describes their basis for objection. It is important that you submit evidence supporting your basis for determining the value of the car. You may want to attach a copy of Kelley Blue Book Valuation that details all of the features of your car and mileage (You can utilize other methods to value the retail value of the car).
Here is a Sample of a 722 Redemption Motion:
MOTION FOR REDEMPTION UNDER 11 U.S.C. 722
NOW COMES Debtor, by and through (NAME OF ATTORNEY OR FIRM)., and moves this Honorable Court pursuant to 11 U.S.C. 722 and Bankruptcy Rule 6008 for a Redemption Order and states in support thereof:
I. PROCEDURAL REQUIREMENTS UNDER 11 U.SC. §722
Pursuant to 11 U.S.C. §722, a debtor may, ".. redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if such property is exempted under section 522 of the title or has been abandoned under section 554 of the title" 11 U.S.C. §722.
The item to be redeemed is tangible personal property intended primarily for personal, family or household use, and is more particularly described as (YEAR, MAKE AND MODEL OF VEHICLE, AND VIN#)
The interest of the Debtor(s) in such property is exempt or has been abandoned by the estate and the debt which is secured by said property to the extent of the allowed secured claim of the Creditor is a dischargeable consumer debt.
Here, Debtor has elected to exempt the vehicle as set for under 11 U.S.C. §522. A copy of the Debtor's Schedule C is attached to the motion as Exhibit "A".
II. VALUATION STANDARD FOR REDEMPTION
11 U.S.C. §722 allows a debtor to redeem personal property by paying the holder of a secured lien the amount of the "allowed secured claim" in one lump sum. Under section 11 U.S.C. §506(a) of the Bankruptcy Code , Congress has set the valuation standard for the redemption of a vehicle as equal to the "price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined".
III. PRICE A RETAIL MERCHANT WOULD CHARGE
To determine the value of a vehicle for purposes of redemption, Courts routinely use industry guides as appropriate evidence of valuation. In re Thayer, 98 B.R. 748 (BK W.D.V.A. 1989). As evidence of the value of the vehicle, (NAME OF LAW FIRM) offers an online printout of a (YEAR, MAKE AND MODEL OF VEHICLE) retail value as best evidence of the redemption value of the vehicle (See Exhibit "B", attached to motion). Additionally, (NAME OF ATTORNEY OR LAW FIRM), offers an online printout of NADA Guide Pricing (See Exhibit "C") for (YEAR, MAKE AND MODEL OF VEHICLE). Both forms of evidence are admissible as "market quotations, tabulations, lists, directories, or other published compilations, generally used and relied upon by the public or by persons in particular occupations." Fed. R. Evid. 803(17). Based on the evidence presented to the court the "redemption value", should be determined to be no more than (DETERMINED VALUE) as evidenced by an online printout of Kelley Blue Book, attached as Exhibit "B", and incorporated as is fully stated herein.
Arrangements have been made by the Debtor(s) to pay (NAME OF FINANCING COMPANY) up to the aforesaid amount in a lump sum should this order of redemption be entered.
The (YEAR, MAKE, & MODEL OF VEHICLE) inconsequential value or benefit to the estate.
WHEREFORE Debtor(s) prays this Honorable Court enter an order:
A. Requiring (NAME OF FINANCING COMPANY). to accept from Debtor(s) the lump sum payment of (DETERMINED VALUE) the redemption value, and;
B. Requiring (NAME OF FINANCING COMPANY) to release its lien of record against the (YEAR, MAKE, MODEL & VIN# OF VEHICLE)
C. Allowing Debtor to redeem the subject property by paying to the creditor the redemption amount on or before the 20th day following entry of the order.
Name of Attorney
Make sure to attach as Exhibits a copy of the 722 redemption loan and a copy of the valuation.
Is There Other Options Available Than 722 Redemption in Bankruptcy?
If you cannot obtain a 722 redemption loan or the loan that you have obtained is not in your best interest, then there are other options available in bankruptcy to retain your vehicle. You can opt for:
Reaffirm-You can reaffirm your car loan through signing a reaffirmation agreement with the lien holder. When you reaffirm a loan that means you continue to be personally liable for the car loan even after bankruptcy. During this process you can try to negotiate the interest rate or monthly payments with the car loan company. They are not required to make changes to your loan, but they may be willing to negotiate some elements of your car loan that may assist you in the repayment. To learn more about reaffirmation agreements you can go to:
- Retain and Pay-In some circuits the courts may allow you to retain and pay your vehicle without signing a reaffirmation agreement. This offers a level of protection in case you are unsure if you will be able to continue to pay the vehicle in the future. If you file for bankruptcy and do not reaffirm the vehicle, then the creditor cannot go after you for any deficiency on the vehicle, if they later repossess the car.
- Vehicle Cramdown-You can file for Chapter 13 bankruptcy and cramdown the value of your vehicle. In a Chapter 13 cramdown you offer to pay the creditor only the replacement value of the car and to lower the interest rate on the car. The replacement value of the vehicle is paid over a 3 to 5 year period.
- Surrender the Vehicle- You can opt to surrender the vehicle in your bankruptcy and to include any deficency that you will owe in the bankruptcy.
The information here is not intended as legal advice. You should consult with an attorney before making any decision in regards to your financial situation.