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Redemption – Refinance your Car in Bankruptcy

Posted on Feb 6, 2009 in Chapter 7

Your car is worth much less than you owe on it.  Your interest rate is sky-high.  Your car is not too old and in pretty good shape.  You can put your hands on some cash.  Or even better, your lawyer knows a company that will lend you some money at  lower rate. 

Good news!  You have the right to “redeem” your car in bankruptcy for the present “retail” value of the car.

What does this mean?  Suppose you owe $20,000 on a car worth $10,000.  If you come up with $10,000, you can pay off the loan in full and get title to the car.  And even if you don’t have $10,000, there are companies which specialize in these types of loans who might lend you $10,000 at a lower interest rate than before, substantially reducing your payments.

One of the good things about the right to redeem is that your attorney may be able to negotiate a better deal for you from your current lender.  Your current lender would be better off cutting its interest rate and your payments than being paid off a lot less than it is owed on the loan.

If you have a nasty car loan but a not-too-nasty car, be sure to ask your bankruptcy attorney about redemption as an option.  Be sure to ask your bankruptcy attorney about trying to make a deal with your lender instead of simply reaffirming at the present high and oppressive interest rate.

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