For many struggling with debt, a vehicle is more than just a car—it’s a lifeline. It gets you to work, helps you care for your family, and allows you to meet life’s daily demands. If you are facing bankruptcy and owe more on your car than it’s worth, redemption under 11 U.S.C. § 722 can be a powerful tool to help you keep your vehicle while significantly reducing what you owe.
Bankruptcy attorneys understand that financial hardship should not mean losing essential assets. Redemption offers a fresh start by allowing you to eliminate excessive car debt and regain financial control.
What Is Vehicle Redemption Under 11 U.S.C. § 722?
Redemption is a legal option available in Chapter 7 bankruptcy that allows you to keep your car by paying its current market value in a lump sum, rather than what you actually owe on the loan. This can be a game-changer for those “upside-down” on their car loans—owing far more than the vehicle is worth.
Example:
- You owe $18,000 on your car, but its fair market value is only $8,000.
- Through redemption, you can pay $8,000 in a lump sum and own the car free and clear—eliminating $10,000 of excess debt.
Benefits of Redeeming Your Vehicle
✅ Drastically Reduce What You Owe – If your loan balance is much higher than the car’s actual value, redemption allows you to pay only the fair market value, saving thousands of dollars.
✅ Eliminate High-Interest Auto Loans – Many car loans come with high interest rates, often making monthly payments unaffordable. With redemption, you pay once and free yourself from the burden of a costly loan.
✅ Own Your Vehicle Free and Clear – Once you redeem your vehicle, you own it outright, meaning no more car payments or fear of repossession.
✅ Improve Financial Stability – Lowering your overall debt makes it easier to rebuild your credit and regain financial stability after bankruptcy.
How Can You Pay for Redemption?
One challenge of redemption is that you must pay the fair market value in a lump sum. However, there are options to make this more accessible:
✔ Redemption Loans – Some lenders specialize in financing redemption payments, often at a lower rate than your original auto loan.
✔ Borrowing from Family or Friends – A personal loan from a loved one may be an option if they’re willing to help.
✔ Using Savings or Tax Refunds – If you have funds available, this can be an excellent way to invest in your financial future by eliminating unnecessary debt.
Choosing the right strategy in bankruptcy can make a world of difference in your financial recovery. Our goal is to maximize the benefits of bankruptcy. If you are considering Chapter 7 bankruptcy and want to keep your vehicle while eliminating excess debt, redemption may be the perfect solution.
Our mission as bankruptcy attorneys is to provide guidance, dignity, and support to those facing financial distress. If you or a loved one are struggling with debt, know that there is a path forward, and we are here to help. Call (844)894-4440 to schedule an appointment with Jenny L. Doling. She has handled more than 7,000 cases over the past 25 years, and she personally meets with each client.
Author: Jenny L. Doling, Esq., LLM Taxation
CA State Bar Certified Bankruptcy Specialist
Secretary and Board of Director of NACBA
President of the San Diego Bankruptcy Forum
Serving Bankruptcy Clients throughout California and
Tax Clients Nationally