Often when you file for Chapter 7 bankruptcy, you still owe money on a car, and want to keep it as means of transportation for you and your family. There are two options in this case, loan reaffirmation or loan redemption. Today we will focus on what auto redemption in bankruptcy is, and if it’s the right choice for you.
About Redemption and a Bankruptcy Auto Redemption Loan
Auto redemption in bankruptcy means that you pay the lender the amount that is owed, or the fair market value of the vehicle, whichever is less. In other words, if you owe $10,000 on a car that is only worth $5,000, you only have to pay the lender $5,000. When a vehicle is worth less than is owed, this is known as being upside down on your loan. Redemption is a good option if you want to keep your current vehicle in Chapter 7 bankruptcy, but the payments are too high.
There is, however, one downside to redemption, and that is the loan must be paid off in one lump sum. Since you are going through bankruptcy, you probably don’t have that kind of money sitting around. In order to pay the lender you will either need to borrow the money from someone, or take out a new loan for the fair market value of the vehicle.
Is Redemption Right for You?
Although redemption may seem like the right choice, you may not save money in the long run if you take out a new loan with a high interest rate. Carefully evaluate if reaffirming your loan and making payments under the current contract makes more financial sense. Remember, surrendering your vehicle can also be an option if you can find another means of transportation, since Chapter 7 bankruptcies only take a few months to discharge.
Once your bankruptcy is discharged, you may qualify for an auto loan that will fit your lifestyle and be much friendlier to your wallet. Here at BankruptcyAutoFinancing.com we specialize in auto financing following bankruptcy. Simply fill out the fill out our online application to see if you can get pre-approved.
Remember we are not lawyers and cannot give legal advice. The situations discussed are only our experiences over the years and may vary with each customer.