(Video) WHAT ARE REDEMPTION AGREEMENTS IN CHAPTER 7 BANKRUPTCY?

Posted by Wesley Scott on October 30, 2018 at 11:50 AM
Wesley Scott

We have discussed what reaffirmation agreements are in Chapter 7 Bankruptcy but what is a redemption agreement in a Chapter 7 Bankruptcy? The best way to illustrate a redemption agreement is to give you an example. Say you own a vehicle worth 5k but you owe 12k on the underlying loan.


Everyone knows that when the car blows up you will give it back to the lender and they can see what they can get for the pile of bolts right? Well, knowing this, some banks are willing to get a bigger sum of money in exchange for releasing their lien now and avoiding that very risk.

Redemption means to pay the whole amount owed now. Now the amount of redemption is subject negotiation. Often times, lenders are willing to negotiate the pay off if they get the pay off now as opposed to later. Given the above example, maybe lender says look, we will accept 5k if you pay us now in total satisfaction of the debt and we will release are lien on the vehicle in exchange.

This is what a redemption agreement looks like. Frankly, redemption agreements are not very popular because a) debtor doesn’t have the 5k up front and b) lender would have to agree to this redemption agreement. Lenders don’t often reach out with these type of agreements and debtors don’t either considering they don’t have the money to make the agreement a reality.

Instead, what is more common is for debtor to pay on the vehicle until the vehicle is junk. The alternative is for debtor to go finance a different vehicle where presumably the amount borrowed will more closely reflect what the vehicle is worth.

CONCLUSION

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Topics: Chapter 7 Bankruptcy, Filing Bankruptcy, MN Bankruptcy