Posted by Sheila Diamond on Wed, Sep 09, 2009 @ 06:33 PM
In the previous Blog I discussed Reaffirmation, which is one of the ways for a debtor in Chapter 7 bankruptcy to keep property secured by a lien such as an automobile. There are alternatives to reaffirmation. There are two ways to eliminate a debt secured by property, one of which is to give the property back to the creditor and the other allows you to keep the property by redeeming it as allowed by the bankruptcy laws.
The kinds of property that can be redeemed is limited to consumer goods which are used primarily for household purposes, such as furniture, a refrigerator, washing machine, dryer, personal computers, televisions and automobiles. The advantage only works to the debtor's advantage if the creditor is underwater (upside down) with its debt. When the collateral is worth less than the debt you only have to pay the creditor what the property is worth rather than the entire debt. An example would be if you owe a computer company $2,000 on a PC that is only worth $500, you would only have to pay the company $500. The only disadvantage is that you have to pay the creditor in cash. Having to pay cash is often a challenge for many individuals just emerging from bankruptcy. In the right situation redeeming consumer goods can work a lot better than a reaffirmation agreement.
To redeem property requires a court order. Your lawyer files the appropriate documents with the Bankruptcy Court, a hearing is set at which time the court places a value on the property. You pay the creditor cash for the value of the property determined by the court and the creditor releases its lien. You now own the consumer good free and clear of debt.