What is redemption?


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bankruptcy redemption consumer bankruptcy

What is redemption?

Redemption means to pay a secured creditor the value of the property securing its debt. Redemption is only an option for a consumer who owes a consumer debt. For example, suppose you owe $18,000 on a car that is now worth just $10,000. The lender is “undersecured,” which means it has a $10,000 secured claim and an $8,000 unsecured claim. You can wipe out the lender’s lien on your car by paying it $10,000. Your personal obligation to pay the $18,000 will be discharged. Thus, you end up owning the car free of any lien.

This option makes good sense provided the value of your property is less than the balance due on your loan. If your property has not depreciated, and the loan is lower than the property’s value, consider other options for keeping the property, such as paying off the debt or entering into a reaffirmation agreement.

(Reviewed 11.14.08)

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