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Debtors can protect their vehicles from the high speed train of bankruptcy using what’s called “722 Redemption.” A chapter 7 bankruptcy debtor who owes money on a vehicle usually either keeps making the same monthly payments to the same bank (called reaffirmation) or surrenders the vehicle to the bank.
If the debtor owes more than the car is worth, however, a “722 Redemption” allows the debtor to effectively “cram down” the loan to the value of the car. The debtor keeps the car but has his monthly payment and total principal lowered.
For example, imagine the debtor pays $553 per month on a 2012 Ford Explorer with a loan payoff of $21,000. Using 722 Redemption, the debtor can force the bank to accept a cashier’s check in the amount of $15,700 (NADA Clean Retail). The debtor doesn’t have $15,700 in cash, of course, so the debtor uses a new bank, a so-called 722 Lender, to pay the first bank $15,700 in exchange for the vehicle title. In this example, the debtor’s monthly car payments to the 722 Lender, even after all fees, would be approximately $393 per month on a new five year loan.
The advantages to the debtor are pretty obvious. The debtor’s monthly payment is lower and, if the debtor wants to trade in the Explorer for an F150, it is much easier because the total debt is lower.
Warning: Don’t try this at home. Call a bankruptcy lawyer.
© 2017 Clark Stith
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.