CHAPTER 7 REDEMPTIONS IN ALABAMA
Ferguson & Ferguson
Attorneys at Law
It is important for a debtor to keep a reliable vehicle when obtaining a fresh start after bankruptcy. There are a number of options for keeping your vehicle during and after a bankruptcy case has been filed.
In Alabama, a 722 Redemption is an important option that can allow you to reduce the amount 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 you owe on your 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 $15,000 and the market value of your vehicle is $10,000, 722 redemption court approval allows you to pay off your vehicle by giving your car loan company a lump sump of $10,000. 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. There are loan companies that do 722 redemption loans.
Financing or Obtaining a 722 Redemption Loan in Alabama
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.
Most loans offered as 722 redemption loans have high interest rates that are not always in your best interest. You should 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 loan payment period.
If you wish to redeem your vehicle in a Chapter 7 bankruptcy then you need to apply for a 722 redemption loan. You will need to apply for a 722 redemption loan through one of these companies prior to filing a motion with the court. 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).
How Does 722 Redemptions 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. 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 include 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.
Are There Other Options Available Other 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.
- 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.
Free Bankruptcy Consultation
If you have questions about 722 redemptions in Huntsville, Alabama, call now for your free consultation. Call 256-534-3435 now. We understand redemptions and are here to help you through this difficult time.