A 722 redemption can provide much-needed financial relief to individuals struggling with a vehicle loan. This process allows you to redeem your vehicle by paying off the outstanding loan balance.
In a 722 redemption, the lender waives the remaining loan balance and releases the lien on the vehicle. You can then own the vehicle outright without any further debt.
The benefits of a 722 redemption are clear: you can regain control of your vehicle and start fresh without the burden of a loan.
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What is 722 Redemption?
722 redemption is a right that allows an individual debtor to redeem tangible personal property, primarily for personal, family, or household use, from a lien securing a nonpurchase money dischargeable consumer debt.
This right is personal to the debtor and not assignable, meaning it can't be transferred to someone else.
To exercise this right, the debtor must pay the fair market value of the goods or the amount of the claim if the claim is less.
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The right to redeem extends to the whole of the property, not just the debtor's exempt interest in it, giving the debtor a broader scope of protection.
For example, if a debtor owned a $2,000 car, subject to a $1,200 lien, the debtor could pay the holder of the lien $1,200 and redeem the entire car.
The redemption is accomplished by paying the holder of the lien the amount of the allowed claim secured by the lien, effectively giving the debtor a right of first refusal in consumer goods that might otherwise be repossessed.
In practical terms, 722 redemption allows a person to keep a vehicle by paying the value of the vehicle, rather than the balance on the loan.
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Process Overview
To obtain a court order allowing for 722 redemption, you'll need to file a motion requesting redemption authorization during your case.
This motion must set out all relevant facts, valuation standard, the terms of redemption, and give the lender an opportunity to respond.
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If the lender doesn't file a response, the motion can be ruled on without a hearing.
A hearing will be held if the lender files a response or the court orders one, where your attorney and the lender argue for their valuation standard and possibly other factors.
The court will then issue an order stating the amount of the redemption payment and that the payment be made in a lump sum to the lender.
This order doesn't require you to actually follow through with the redemption, so if the court uses a higher valuation standard you don't accept, you can decline and be back to your original options.
Our attorneys are aware of the different positions local courts and judges take on redemption motions and can make a compelling argument for using the lowest valuation possible.
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Drawbacks
The drawbacks of 722 redemption are significant, and they might make you think twice before considering it. The major issue is that payment needs to be made in a lump sum, which can be a heavy burden.
This is the primary reason 722 redemption isn't more common. The valuation standard used by courts is another significant hurdle.
In courts that use the retail valuation standard, redemption might not be worth it. If the retail value of your vehicle is $15,000, you'll be required to pay that amount to keep it.
You could also pay $15,000 to buy the same vehicle from a dealer, which might be in better condition.
Bankruptcy Motion Basics
You can file a motion or bankruptcy case to redeem your auto from the lender according to its market value, thanks to Section 722 of the bankruptcy code.
Redemption is the ability to save or pay the lender the retail value and have the lien released, allowing you to pay cash or finance to pay off the old lender.
A motion requests some action to help process the case, and you can only redeem personal property like a car, boat, or furniture in a Chapter 7 bankruptcy.
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You can't redeem a home or modify a first home mortgage, so be aware of that limitation.
Redemption is done by filing a motion showing the auto's fair market value with the court order supporting your request to release the lien.
The process takes at least 20 days to be approved, and you must pay a lump sum of money immediately for the interest rate of the car.
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