Can I Keep My Car in Bankruptcy? Yes. In Fact, You May Be Able to Keep It on the Cheap!

It’s a little-known secret — and too infrequently exercised right of a debtor — to “redeem” a car in Chapter 7 bankruptcy, that is, take the car back from the lender at what the car is worth, not what you owe.

Yes, you heard that right: A debtor in Chapter 7 bankruptcy has a right to take his or her car back from the lender at what the car is worth.

Section 722 of the bankruptcy code gives Chapter 7 debtors the right to force the lender, who is holding as collateral personal property intended primarily for personal, family or household use (such as the family car), to fully release its lien in exchange for a lump sum payment by the debtor of the retail value of the item.

Making the lump sum payment can be tricky, but there are lenders we work with who will lend you the money to finance a redemption.  And, of course, you can also try your own bank (especially if you have stable income), family or friends, or assets you have that are exempt in bankruptcy, such as a loan from your 401K.  The only limits  are your creativity.

For many debtors, that can mean a savings of thousands — and even tens of thousands — of dollars, plus a head start on the so-called “fresh start” bankruptcy law provides.

Surprisingly, few bankruptcy attorneys discuss this option with clients.  Most attorneys only tell debtors about the “reaffirmation” option in which the debtor offers to take back liability on the old loan to keep the car.  If the judge approves the reaffirmation, the debtor  is re-saddled with the debt, which is not good, especially if the car is worth less than the loan balance.  Why start your new financial life with a negative net worth?

Our office does talk to you about the redemption option.  And we’re happy to undertake the court process for you to make it happen in the bankruptcy courts in which we file: Maryland and Washington, DC.

Call us.  We’ll talk about your case and what we can do.

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