It may be possible to redeem personal property, including furniture, computers, televisions and other electronics as well as motor vehicles, for less than the balance owed on the purchase price of that particular piece of personal property.
There are several rules that must be followed in order to redeem personal property other than a motor vehicle:
- This program is available in Chapter 7 cases only;
- The program only is available to redeem personal property--not houses, not business property. The Bankruptcy Code lists the property that may be redeemed as personal property intended primarily for personal, family, or household use;
- The property must be valued fairly and honestly. I advise clients to look on ebay to try to find the fair market value today of their goods. Remember that the goods are worth what you could sell them for today. I am looking for an auction or yard sale value, not the cost to replace the items;
- The Court generally requires that borrower pay the redemption amount in full (the amount ordered by the Court to be paid) within 30 days after the date the Order is signed by the Judge.
There are addition considerations when the personal property is a motor vehicle--
The motor vehicle is valued by referenced Dealers Association (N.A.D.A) guidelines. The redemption value is determined to be the retail value of the motor vehicle, with adjustments made for the present overall condition of the vehicle, including its physical and mechanical condition, the mileage and any body, engine or other mechanical defects. Evidence may be presented to the Court for costs to repair the vehicle. These needed repairs may be deducted from the retail value of the vehicle.
There are loan companies who may make redemption loans. A loan will not be made if the vehicle has more than 175,000 miles. In general, the loans carry a high interest rate (usually between 19% and 32% interest) and must be repaid over a two or three year period of time.
The major advantages to redemption of a vehicle are that if you owe significantly more than its value, you can redeem for less than the amount owed. I have seen vehicles redeemed for less than 60% of the debt owed. Because the redemption amount must be paid in full within a short period of time after Chapter 7, most people obtain funding prior to filing the Motion to Redeem. This also insures that you know in advance what the new monthly loan payment will be.
