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In a Chapter 7 Bankruptcy, How Can I Redeem My Car?

When a Chapter 7 Bankruptcy is filed and you have a car loan, you are required to file a Notice of Intention to indicate what your intention is relating to that car loan.  Generally, there are three options.  You can reaffirm the debt, which is basically entering into an agreement to treat the loan no differently than prior to filing the bankruptcy.  You can surrender the vehicle.  Typically in a Chapter 7 Bankruptcy any deficiency resulting after the vehicle being sold by the lien holder would be eliminated as a part of the Chapter 7 Bankruptcy.  Or you can redeem the vehicle.  For example, if you owe $10,000.00 on a vehicle, but the vehicle is only worth $6,000.00, you can satisfy the entire debt by paying $6,000.00 in full satisfaction of the loan.  In effect you are paying the secured creditor what they would have received had the vehicle been returned to them and sold.  Of course most people filing bankruptcy do not have $6,000.00 sitting in their bank account.  However, redemption can still be accomplished.  In addition to receiving help from a friend or relative, there are banks that lend to people in bankruptcy specifically for the purpose of redeeming a vehicle.  Typically the interest rate is going to be high.  However, often paying a higher interest rate on $6,000.00 is still going to result in a reduced payment and reduced total amount paid than the original loan of $10,000.00.  Some companies will even provide the analysis as to what the payments would be before the bankruptcy is even filed.  Certainly, when a debtor has a vehicle where the debt is greater than the value of the vehicle, but they wish to retain the vehicle, redemption is something that should be seriously considered.

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