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If you are required to surrender some nonexempt property that you wish to keep–for example, a car—you may under certain circumstances arrange to redeem it (buy it back) for a price no greater than its current redemption value. Redemption value is the amount for which a retailer could sell the item, taking into consideration the item’s age and condition. For example, if you owe $3000 on your car, but its redemption value is only $1200, you can recover the car by paying a lump sum of $1200 to the creditor who has a lien on it at the time of redemption, which should be within forty-five days of the first creditors’ meeting. The redemption price must be paid in full, this differs from past practice, which allowed a lender to accept the redemption price in installments over an extended period of time.
Where this money would come?
This is a difficult question but this money can come from your exempt personal assets. Possible sources of funds would include your post petition salary, proceeds from the voluntary sale of exempt assets, or loans from relatives or friends. Some companies specialize in making redemption loans on automobiles. Sometimes you can negotiate a short payment plan, but it is up to the creditor whether or not to allow this.
What is reaffirmation of a debt?
You may reaffirm a debt, if the applicable creditor is willing to allow it. By reaffirming a debt, you promise to pay the creditors and you may keep the property involved, so long as you keep your promise. But if you later default, the creditor can repossess the property and the remaining balance will not be discharged. The new bankruptcy law provides some protections for consumers considering reaffirmation of their debts. It imposes certain obligations on creditors. Under the new law, creditors must offer extensive disclosures to debtors, including the following statements:
it is a serious financial decision. The law requires you to take certain steps to make sure the decision is in your best interest. If these steps are not completed, the reaffirmation agreement is not effective, even though you have signed it.
You may rescind your reaffirmation agreement at any time before the bankruptcy court enters a discharge order, or before th end of the 60-day period that begins on the date your reaffirmation is filed with the court, whichever occurs later.
If a debtor reaffirms a debt, the creditor must tell the debtor as to the amount of debt reaffirmed, the applicable interest rates, when payments will being, and filing requirements with the court.
Reaffirmation of debts other than home mortgage must be approved by the debtor’s lawyer or the court. The new law also prohibits debtors from retaining property without redeeming or reaffirming the debt by making installments payments. In other words, even if you are current on, say, your car loan, you still must reaffirm or redeem that loan in order to keep the car. This is a change from what used to be permissible in some parts of the country. Chapter 7 debtors must redeem or reaffirm promptly, within forty-five days of the first creditors’ meeting; if they don’t meet this deadline. Reaffirmation is not always in your best interest, especially when the reaffirmed debt relates to property worth far less than the debt being reaffirmed. If you can, it is a good idea to use a reaffirmation negotiation as an opportunity to renegotiate the loan, especially on personal property that has depreciated. If you want to keep items that are worth less than the secured debt against them, then either redemption or a Chapter 13 reorganization may make more sense.
What to do with leased Cars?
If you are leasing a car and wish to retain it during and after a chapter 7 bankruptcy, you must notify the lessor in writing that you want to assume the lease. The lessor will then tell you whether it is willing to let you keep the car, and on what conditions–for example, the lessor may need that you make up back payments. In order to keept the car, you must then agree to the lessor’s offer within thirty days. Your liability under the lease will be discharged if you assume it, so the effects is like of a reaffirmation but without the requirement of attorney court approval.