Car redemption · Beverly Hills
Redeeming a Car in Chapter 7
Redeeming a car in Chapter 7 means you keep your financed car by paying the lender what the car is worth today, in one lump sum. If you owe more than the car is worth, redemption can cut the payoff by thousands of dollars. Call (310) 362-9071 to see whether redemption fits your car loan.
- Redemption is allowed by Section 722 of the Bankruptcy Code
- You pay the car's current retail value, not the loan balance
- Payment is due in one lump sum unless the lender agrees otherwise
At a glance
How redemption works
Redemption lets you buy your car free of the lender's lien for its current value. The rest of the loan is wiped out in your Chapter 7 discharge.
Section 722 of the Bankruptcy Code allows it when these rules are met:
- You are an individual filing Chapter 7.
- The car is mainly for personal, family or household use.
- The loan is a consumer debt that can be discharged.
- The car is exempt or the trustee has given it up.
For a car you bought for personal use, the value is the retail price a dealer would charge for a car of that kind, age and condition. That is often more than trade-in value but much less than the loan balance on an older or high-mileage car. You and the lender can agree on a value. If you cannot agree, the court decides.
Example: you owe $18,000 on a car that is now worth $9,000 at retail. If you redeem, you pay $9,000 and the other $9,000 of the loan is discharged. These numbers are for illustration only.
Where the lump sum comes from
The hard part of redemption is the lump sum. Most people use one of these sources:
- Exempt savings. Money you can protect with an exemption can be used to redeem.
- Help from family. A relative can give or lend you the money.
- A redemption loan. Some lenders make loans just for redeeming a car in bankruptcy. The new loan pays the old lender, and you repay the new lender after your case. Interest rates on these loans are often high, so compare the total cost.
Before you take a redemption loan, read the terms closely. A high rate on a smaller balance can still cost less than a lower rate on a much larger one, but not always.
Redemption vs. reaffirmation
There are three common ways to deal with a car loan in Chapter 7. You can redeem, you can reaffirm the loan, or you can give the car back. Our page on keeping your car in Chapter 7 covers all three.
| Redemption | Reaffirmation | |
|---|---|---|
| What you pay | The car's current retail value | The full loan balance, unless the lender agrees to less |
| How you pay | One lump sum | Monthly payments under the old loan |
| Interest rate | Set by any new loan you use | Usually the old rate |
| Risk later | None to the old lender once paid | You stay personally liable if you fall behind |
Redemption often beats reaffirmation when the loan is well above the car's value, or the interest rate is high. Reaffirmation may be better when you owe close to the value, your rate is low, and you cannot raise a lump sum.
If you need to pay over time and want to lower the balance, Chapter 13 may help. See Chapter 13 car loan cramdown. Different rules apply to cars bought within 910 days before filing.
The motion and the timing
- State your intention. You file a statement of intention saying you plan to redeem the car. It is due within 30 days after filing or by the date of the 341 meeting, whichever is earlier.
- Agree on value or file a motion. If the lender agrees to a value, the deal is put in writing and approved. If not, your attorney files a motion asking the court to set the value and approve the redemption.
- Pay on time. You must carry out your plan within 30 days after the first date set for the 341 meeting, unless the court extends that time.
If you miss these steps, the automatic stay can end as to the car, and the lender may repossess it. If a lender is already threatening to take your car, see our car repossession help page.
What to watch for
- Equity in the car. If your car is worth more than the loan, the extra is equity. The California motor vehicle exemption protects $8,625 of equity under either system, for amounts effective April 1, 2025. Learn more about the California motor vehicle exemption.
- Business vehicles. Redemption only applies to cars used mainly for personal or household purposes.
- Missing the deadline. Late action can cost you the car.
- Overpaying. Do not accept the lender's first value without checking real retail prices for your car's condition.
Read more about all your options on our Chapter 7 bankruptcy page.
What it costs
- Chapter 7: flat attorney fee from $1,200, plus the $338 court filing fee
- Chapter 13: attorney fee quoted in writing, and part of it can be paid through the plan
- Payment plans are available, and the first consultation is free
More on Chapter 7 bankruptcy
- Chapter 7 bankruptcy in Beverly Hills
- California Median Income Figures for the Means Test
- What Debts Are Wiped Out in Chapter 7
- Debts Chapter 7 Will Not Discharge
- Can I Keep My Car in Chapter 7?
- Can I Keep My House in Chapter 7?
- The Chapter 7 Timeline, From Filing to Discharge
- What the Chapter 7 Trustee Looks For
- Filing Chapter 7 With No Income or Between Jobs
- Filing a Second Chapter 7: The Eight-Year Rule
- Chapter 7 for Married Couples: Filing Alone or Together
- What Happens at the 341 Meeting of Creditors
- Redeeming a Car in Chapter 7
- Means test evaluation
- Reaffirmation agreements
Car redemption questions
Can I redeem my car in Chapter 7 with monthly payments?
No, you usually cannot redeem a car in Chapter 7 with monthly payments. Redemption is paid in a lump sum, unless the lender agrees to something else. Many people use a redemption loan to make that payment.
How is the car's value set for redemption?
The car's value for redemption is its retail replacement value, based on its age and condition. You and the lender can agree on it. If you cannot agree, the judge sets it.
What happens to the rest of my car loan after redemption?
The rest of your car loan after redemption is wiped out in your Chapter 7 discharge. You no longer owe the old lender anything.
Is redemption better than reaffirming my car loan?
Redemption is often a better deal than reaffirming when you owe much more than the car is worth. Reaffirming may make more sense if the loan is close to the car's value and the rate is low.
Free consultation
Owe more than your car is worth
Call (310) 362-9071 or send the form. We can compare redemption, reaffirmation and surrender for your car loan.
Law Offices of John Asuncion9454 Wilshire Blvd., Penthouse Floor
Beverly Hills, CA 90212
(310) 362-9071
Monday to Friday, 9 a.m. to 6 p.m.