In a Chapter 7 Las Vegas bankruptcy, many petitioners own cars that are worth far less than the debt they incurred to borrow them. Fortunately, the bankruptcy code allows petitioners the option of keeping their vehicles in a process called “redemption.” The debtor need only pay off the vehicle’s value to the bank in one lump sum payment. The problem, though, is that by the time people file Chapter 7, they often have no cash on hand to redeem their vehicles. One option for them to consider is borrowing money from a “redemption lender,” i.e. a bank that loans someone the money necessary to redeem the vehicle. There are benefits and drawbacks to borrowing from a redemption lender that are worth knowing about.
1. The interest rates on a redemption loan are very, very high, often an annualized rate of 18-25 percent. Some attorneys do not advise their clients to use redemption loans because of the high interest rates. Those with better credit may be able to find better deals or possibly refinance the loan with another lender at a lower interest rate after bankruptcy.
2. Despite the interest high rate, it may still be worthwhile to consider the redemption loan. If the auto loan’s remaining value is greater than the redemption loan’s would be even if all the payments are made, then the petitioner is saving money in the long run.
3. The petitioner may still be making lower monthly payments than under the original loan.
4. Debtors exiting bankruptcy may have good prospects for being able to rebuild credit, which would also make the loan easier.
5. Some redemption lenders also throw in the cost to the petitioner of paying his or her attorney’s fees for arguing the redemption motion, which can run be several hundred dollars. Again attorneys’ opinions differ on the ethics of receiving payment from a party other than the client.
For some people, redeeming their vehicles is the best way to reduce their payments and allow them to rebuild equity. It’s especially helpful given how important automobiles are for American families. Talking to an experienced Las Vegas bankruptcy attorney will help you determine which option is best for you.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation by calling 702-903-1354.