In Chapter 7 bankruptcies, you need to decide what you want to do with your secured debts. The Statement of Intent offers your 3 choices, surrender, reaffirm or redeem (there is also a so called “fourth option” but we’ll skip over that for now). This post will discuss the option of redeeming.

In many situations with secured loans, the amount of the loan is more than the collateral. Think of a car loan, often the amount you owe is more than the car is worth.

If you want to keep this car, you could reaffirm and pay the car loan at its contract rate or you could do a redemption. Redeeming allows you to satisfy a secured loan by paying as much as the collateral is worth. So if you have a car loan with a balance of 20,000 but the car is only worth 9,000, in a redemption you pay only 9,000 for the car.

This option works well if you have some access to new funds since redemptions are normally done while the case is still open. Usually, Debtors fund a redemption using money from friends or relatives. Another method would be to withdraw money from a retirement account.

For another bankruptcy attorney’s artice on redempion, go to Los Angesles Bankruptcy Attorney Mark Markus’s page.