Redemption in Chapter 7: Keep Your Car While Lowering the Payments

In Chapter 7, there are three possibilities for dealing with a debt that is secured by collateral, one of which is a redemption. Redemptions are usually only done with regard to vehicles, though it would be theoretically possible to do it with other types of personal property too. This article deals with redeeming cars. This is possible in Chapter 7, but not Chapter 13.

First, with the agreement of the creditor, you may keep the car, and continue your obligation to pay for it. This is called a reaffirmation. The effect is to leave the car out of the bankruptcy and continue to pay for it, usually under the terms of the original contract. A reaffirmation usually requires that you be current in your payments on your car note.

The second possibility is to surrenderthe collateral. In that case, you lose the car to the creditor, and the debt is discharged. The creditor cant collect any money later. This makes sense when you cant afford the debt, or if something is wrong with the collateral so that you prefer to pursue other options. You can certainly surrender the collateral even if you are behind on the debt and a reaffirmationis not possible.

The third possibility is a redemption. Redemption is a remedy that exists only under the bankruptcy code, and so you have to file a Chapter 7 to take advantage of it. It is perfectly legal, and is easily achieved in the right circumstances. You dont need to be current in your payments to redeem. This remedy will surprise you, and is not obvious at all.

The Code provides that if a debtor pays the fair market valueof personal property in a lump sum, that the creditor must accept the money in exchange for its lien rights. The challenge is that debtors do not have enough money to make large lump sum payments. The solution is that a few banks make money by financing a bankruptcy redemption if the circumstances qualify under their guidelines. The practical effect of a redemption is that the debt is refinanced: the old debt is satisfied, and a new, lower debt/loan is created in its place with a new lender. That lender becomes the lienholder in the place of the original creditor.

The right circumstancesare as follows: 1) the car must be relatively new (10 years or less and less than 150,000 miles), and 2) the debt must not be co-signed, 3) the debt should significantly exceed the value of the collateral securing it, and 4) your provable income should be high enough to make the payments.

The debt might exceed the value of the collateral for several reasons. One is where the debtor rolled a pre-existing debt into the price of his car when he bought it (in other words, the trade-in was not paid off). Another circumstance is where the lender (usually a credit union) has cross- collateralizedthe car note with some other debt, such as a loan or credit card. In that case, the car may be collateral for both the car note and for the other unsecureddebt based on the language in the loan agreement. Third, high finance charges, late-fees, or other charges may have driven up the pay-off to a figure that is much more than the value of the car.

If your car is relatively new and is worth significantly less than what is owed on it, we can explore

redemption options for you. A successful redemption is accomplished by allowing us to contact the potential lender on your behalf by telephone right on the spot. If the lender agrees, we file a Motion to Redeemwith the Court, which would be granted so long as the we can reach an agreement with the creditor as to the amount of the fair market valuewhich may be negotiated.

The beauty of a redemption is that everyone is happy… the payments to you are invariably lower than before, the payoff is lower than before, and the original creditor is happy to receive a lump sum. Our attorney fees are included in the new loan, so you dont have any out of pocket expense. Whether you meet the necessary guidelines is not hard for us to determine, and many loans qualify.

Call one of our lawyers for an appointment at 770-519-4143 and we can explore this possibility for you. 

Tax Refunds, Lawsuit Recoveries, and Inheritances

If the state or federal government owes you money for a tax refund that you have not yet received, this is considered to be an assetowned by you similar to money in your bank account. Assets should be disclosed in bankruptcies. You are then allowed to exemptor protect those assets within certain dollar limits depending on what the asset is, and depending on how many people own it.

In some Chapter 13’s, but not all of them, you might be required under your plan to pay in part of future tax refunds to pay creditors if they would not be paid in full otherwise. You should ask the lawyer about this if you are filing Chapter 13.

In either Chapter 7 or Chapter 13, disclosing assets is the proper way and best way to protect them. Hiding or failing to disclose assets can result in the loss of protection that you would otherwise have, and creditors and Trustees can make problems for you if they allege that you failed to disclose something that should have been disclosed.

Similarly, if you have a claimagainst someone else, regardless of whether you have filed suit, and regardless of whether you have retained a lawyer, this claimis also an asset that should be disclosed and exempted in a bankruptcy. It doesnt matter if the exact value of the claim is known or not. Valuecan be listed as unknown. Personal injury, products liability, workers compensation, and employment discrimination are common examples of this type of claim. Claims should be disclosed whenever they arise, even after a bankruptcy has been filed.

If you are due to inherit money or property from someone who has died, your share is an asset, even if the inheritance has not been distributed. If someone dies within 180 days (six months) after you file, that inheritance is also an asset, and your share should be added to the schedules and exempted for your protection.

The disclosure of assets does NOT necessarily mean that you will lose them. Assets can be protected within limits in a Chapter 7 by exemption, and you are not subject to losing assets in Chapter 13 at all (even though it might or might not impact the minimum amount of your monthly payments). A Chapter 13 is a voluntary proceeding. If the burdens of continuing the case outweigh the benefits, you can just terminate the proceeding. Thus, people very seldom lose anything that they dont want to lose when they bankruptcy, assuming they consult an attorney about the rules in advance to make informed decisions.

Each case is different. In the vast majority of cases, debtors safely own assets, disclose assets, and protect them. If it turns out that you are subject to losing something that you dont want to lose, the best approach is to discuss it specifically with the lawyer ahead of time. The best answer often involves balancing benefits and burdens in that particular case. This will eliminate unnecessary worry about losing assets.

Please call us at 678-519-4143 today to discuss your specific situation. 

Pick Your Lawyer Carefully, Then Trust That Person

We frequently receive calls from people who filed their bankruptcy case with another lawyer, and now want to change lawyers. Sometimes its because the first lawyer wont return calls. Sometimes the client just doesnt understand requirements and procedures. Sometimes they have received objections, and believe their case has been thrown out, or will be thrown out, no matter what they do. Sometimes clients suspect that they are not receiving the best deal possible.

To be successful, bankruptcies require that the paperwork be done accurately. Each case is different, and one size definitely does not fit all. The lawyer needs documentation (paystubs, tax returns, bills, letters, etc.) to fill out the forms at the beginning and on an ongoing basis so that the Trustee or creditors do not object. Debtors often believe that approximations are good enough, and that they are free to pick and choose which debts to file. Approximations work occasionally, but not always. You are always supposed to list all of your debts, even if you are keeping the property or paying for it outsidethe bankruptcy. The general rule is that everything is disclosed, even though there may be considerable freedom in deciding how debts or assets are treated in the plan or statement of intentions.

Our experience is that taking time to be accurate on the front end greatly reduces anxiety, and reduces complications in both simple and hard cases. Naturally, hard cases, like business cases or repeat filings, take longer to get right than simple cases. Sometimes clients believe that their case is hard, when really its easy, and sometimes they think its easy, when its complex for reasons they did not anticipate. Either way, it works best when everyone understands the challenges and benefits as early as possible. The best way to make that happen is to be prepared with paperwork. Keep appointments. Listen carefully to questions, and trust that the lawyer really is on your side even if he warns you about constraints. Trust that the lawyer wants you to succeed, and get what you want as badly as you do.

If you are wondering about filing a bankruptcy, call first and ask general questions. Listen for whether you are being treated with respect, and expect to get some meaningful answers to your questions. However, you shouldnt expect highly specific answers if you havent met the lawyer in person and provided all the information needed to write detailed plans and schedules.

After you file, trust the lawyer that you have chosen. The procedures and requirements are too numerous to understand everything at once, especially things that may or may not happen in the future. Sometimes you have to be patient and let your questions come into focus.

After you have chosen to file with a particular lawyer, its not proper for a different lawyer to give second opinions and second guess decisions that your lawyer has made. When people who are already represented ask me questions, I may feel like offering my own opinion and solutions, but I almost always refrain. A person who offers a second opinionoften hasnt understood everything. Its disrespectful to both the lawyer and the client to make superficial suggestions without an adequate grasp of the facts.

Please call us at 678-519-4143 to discuss your particular situation. With our help, starting the process will be less stressful, smoother, and more successful than what you might think.