If you’re filing Chapter 7 bankruptcy and worried about losing your car or other personal property, there’s a powerful—but often overlooked—tool that might help: redemption.
Under 11 U.S.C. § 722, redemption lets you keep essential personal property (like your vehicle or household items) by paying only the item’s current fair market value, not the full loan balance. This can make a huge difference if you owe far more than your car is worth.
How Redemption Works
Imagine you owe $14,000 on your car loan, but your car is only worth $6,000. Through redemption, you can pay the $6,000 and wipe out the remaining $8,000. Once you pay the court-approved value, the lender’s lien is released, and you own the car free and clear.
When Redemption Makes Sense
Redemption is most useful when:
- You owe significantly more than the vehicle’s value
- The car is in good condition and worth keeping
- You have (or can access) a lump sum of money—perhaps through a family member or specialized redemption financing
Several lenders now offer short-term redemption loans, helping Chapter 7 filers come up with the necessary funds. These loans can carry higher interest rates, so it’s important to understand the trade-offs—but for many, it’s still a better deal than keeping an underwater car loan.
Timing and Process
Redemption must be completed before your Chapter 7 discharge, so don’t wait until the last minute. Your attorney will file a motion asking the bankruptcy court to approve the redemption amount. If approved, you’ll pay the lender the agreed value in a lump sum, and the lien will be removed.
Why It Matters
Redemption can help you start fresh financially—keeping the car you need for work or family life, while shedding the crushing debt attached to it. For many bankruptcy clients, it’s the single most impactful step toward rebuilding stability after filing.
If you’re considering bankruptcy and want to know whether redemption could help you, contact Norred Law and ask for a consultation with Clayton Everett. We’ll review your situation and help you determine whether this option makes sense for your case.