722 Redemption Loan and Bankruptcy
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722 Redemption allows you to pay off secured personal property in one lump sum payment by paying the secured creditor a lump sum payment based on the fair market value of the property. 722 redemption can allow you to save a significant amount of money by reducing the outstanding balance that you owe on your vehicle or other household items.
How Does 722 Redemption Work?
11 USC 722 of the bankruptcy code allows you to redeem secured personal property by paying the fair market value of the asset in one lump sum payment. This can save you a significant amount of money for secured property that is upside down. For example: If you have a 2007 Honda Accord whose fair market value is $12,000 but the outstanding loan is $20,000, then 722 redemption will allow you to pay off the vehicle through a lump sum payment of $12,000.
The fair market value of personal property is generally considered to be the retail value. For vehicle valuation a number of sources can be used to determine the retail value based on the condition of the vehicle. Sources such as Edmunds, Kelley Blue Book, or NADA or an independent appraisal can be used to determine the retail value of the vehicle based on its current condition.
722 redemption is mostly used for vehicles but can be used for other secured personal property including household furniture and appliances. The bankruptcy code allows you to redeem any secured personal property that is intended for “personal, family or household use”.722 redemptions only applies to Chapter 7 Bankruptcy.
How Can You Afford A Lump Sum Payment?
The majority of people who are in bankruptcy do not have the money to pay secured creditors a lump sum payment for personal property. If this is the case, you can apply for a 722 redemption loan with a company who offers these loans. If you are approved for a redemption loan you will be given a loan based on the company's assessment of what the fair market value of the property is. Once you are approved for the loan, you will need to file motion with the bankruptcy court for approval. If the bankruptcy court grants the 722 redemption motion then you will be allowed to pay the secured creditor a lump sum payment for the secured asset, and the creditor must then release the lien against the vehicle.
After completing the process, you will then be responsible for paying the 722 redemption loan to the new loan company. The new loan can reduce your overall monthly payments and outstanding balance.
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