Arizona Bankruptcy:  Redemption in a Bankruptcy in AZ

Our Mesa Bankruptcy Lawyers discuss bankruptcy in Arizona. Moreover, we dive into redemptions in a bankruptcy. Our AZ BK Attorneys discuss the advantages and disadvantages of redemptions as well as the process of redemptions. Also, we will look at items that are financed for more than their value and how to get redemption on said items.

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If you are considering bankruptcy, you might be wondering what effect filing will have on personal property you have financed. You may be making monthly payments, on your vehicle, furniture, appliances, and even your cell phone. If you declare Chapter 7 bankruptcy, you will be presented with two options of how to keep these assets: redemption and reaffirmation. Otherwise, you will have the option to surrender them as part of your bankruptcy.

What is the Redemption Option in a Chapter 7 Bankruptcy in Arizona?

If you owe more on your financed property than it is worth, you may want to consider redeeming it in Chapter 7 bankruptcy. In Chapter 7 bankruptcy, redemption allows you to pay the current value for your financed property, as opposed to what you owe on the loan.

You will have redemption available as an option for items financed for more than they’re worth if they meet the following criteria:

(1) The property is secured to a debt as collateral;

(2) It is tangible personal property, not real estate;

(3) Your trustee abandons it;

(4) It is a consumer debt, not business;

(5) You can pay the amount in one lump sum. 

The Advantages and Disadvantages of Redemption in a Bankruptcy in Mesa, Arizona

The most obvious benefit of redemption is that you will get to keep your property, and pay its actual value instead of your inflated loan amount. If you are able to take advantage of this option, you could potentially save thousands of dollars. If you are able to come up with the funds, the creditor may not object to your redemption. You may be able to find a lender to finance your redemption. However, there are limitations to the benefits of redemption. You can’t redeem real estate or business property. Redemption may not be available as an option for you, or the trustee may choose not to abandon it. You also may not be able to make the lump sum payment, or find redemption financing without an astronomical interest rate.

What is the difference between Redemption and Reaffirmation in a bankruptcy?

In a redemption, you will pay the financed asset’s actual market value in one lump sum payment, while in a reaffirmation, you will retain the debt through your bankruptcy and continue your usual monthly payments for the term of the loan.

You will likely need to sign a reaffirmation agreement with your lender to retain your loan through bankruptcy. Your lender may allow you to simply continue your payments as usual after your bankruptcy, without an official reaffirmation agreement. However, your lender can opt to repossess the vehicle, and will act more quickly if you are late on payments than before your bankruptcy. The bankruptcy court will also need to approve your reaffirmation, which will be addressed in a hearing that is separate from your 341 Meeting of Creditors.

How to Keep your Car while Lowering Your Payments in a Bankruptcy

Most reaffirmation agreements keep all the same terms of the original agreement, but you may be able to negotiate a new lower interest rate or principal balance. The bankruptcy court likely won’t sign off on an obviously unfair agreement, so it may be in your lender’s best interests to cut you a small break from your original agreement so that the court will approve the reaffirmation. Having a bankruptcy attorney as your representative may help you be more successful in negotiating a favorable reaffirmation agreement.

Reaffirmations are most likely to be approved when you owe less or close to the actual market value of the asset. Since courts are unlikely to reaffirm an agreement where the debtor will pay far more than the asset’s value over time, you should pursue redemption if your loan amount exceeds your asset’s value.

Just because you want to seek the advantages of a redemption through bankruptcy doesn’t mean you won’t be able to pay your vehicle or other financed asset off in monthly installments as opposed to a lump sum payment. You may be fortunate enough to have friends or relatives who can pay off your lump sum payment for you and accept monthly installments after your bankruptcy. Otherwise, some financial institutions specialize in offering loans to bankruptcy filers. These lenders pay the full balance of your vehicle or other property, and you pay back that lender in monthly installments instead of your original lender. Because you will file a motion with the court to proceed with the redemption, this debt won’t be discharged along with your other debts in your bankruptcy.

How to Redeem Your Property in a Bankruptcy in Mesa, Arizona

The first step to redeeming your property in bankruptcy is determining the asset’s correct value. The courts will generally approve a value that is somewhere between its purchase price and its market value. Some items may have a generally approved appraisal method, such as Kelley Blue Book for motor vehicles.

Next, you or your attorney should stipulate this value with your redemption lender. The lender may not agree with your initial proposal, so you may need to negotiate for a different term, principal balance, or interest rate.

Then, you or your attorney will need to file a motion in the bankruptcy court. The filing fees for this motion may be included in your redemption loan. You will then continue payments per your agreement until the balance is paid.

Contact Us to Keep Your Car through a Redemption

If you are struggling with debts but want to keep your financed vehicle, or any other financed asset, our dedicated bankruptcy staff and attorneys are here to assist you. Whether you  need help navigating a reaffirmation or a redemption, our bankruptcy lawyers are well-versed in applicable laws, best bankruptcy practices, trustee preferences, and lender negotiation tactics. The best part is that hiring a bankruptcy attorney is probably far more affordable than you think.

My AZ Lawyers Mesa bankruptcy attorneys offer competitive rates and Zero Down payment plans for qualified Chapter 7 bankruptcy clients. Get started towards your financial clean slate, while keeping your car- possibly with lower payments! Our bankruptcy lawyers are standing by and offer free initial consultations.