A debtor may redeem their auto in a chapter 7 bankruptcy. This means that a debtor may keep their auto by paying to the finance company, either the balance on the loan, or the value of the auto, if the finance payoff exceeds the auto’s value. Unless both parties agree otherwise, the payment must be made in a lump sum.
Obviously, the debtor wishes to keep the auto by paying the least amount to the finance company. Therefore, if the finance payoff balance is more than the value of the auto, the debtor may keep the auto and eliminate the lien and financing, by paying the value of the auto. This means that if the auto has a value of $8,000.00 and the finance payoff is $10,000.00, the debtor may keep the auto, and eliminate the lien and financing, by making a lump sum payment of $8,000.00.
There may be an issue regarding value. If all parties cannot settle on the value amount, the parties may hold a hearing for the judge to determine the value. Each party may present their appraisal and expert to support their figures.
Redemption is unusual. Typically, a debtor will keep their auto by continuing to keep and pay the auto financing, the same as if no bankruptcy case was filed.
There are many questions people have relating to their vehicle and how it’s impacted by bankruptcy. Robert Manchel, a NJ Bankruptcy Lawyer, is available to discuss your questions at (866) 503-5655.