In Bankruptcy, redemption is a type of relief, only available for consumer debt, which allows a debtor to pay a creditor’s secured debt.  What this means is that your creditor may relieve the lien on your personal property if you pay a lump sum equal to the current market value of the collateral.  For example, say you owe $7,000 on a motorcycle that has a current market value of $3,600.  In this case, the motorcycle, or the collateral, is worth almost half of what you owe on it, which means that your creditor has a $3,600 “secured claim” and a $3,400 “unsecured claim” (due to the loss in market value).

Using the above example, redemption essentially allows you to make a lump sum payment of $3,600 to pay for your creditor’s secured debt.  By paying for the creditor’s secured debt, the creditor must release its lien on your motorcycle and you will be discharged from your personal obligation to pay for the remaining $3,400 of the total debt.

Before going forward with this option, you must remember that the redemption option is only available for the purchase of goods, such as motor vehicles, appliances, or furniture.  Second, redemption requires that you pay for the secured debt in one lump sum, which may possibly be a lot more than you can afford to pay.  However, redemption may be a sensible option if you have the money to pay for the current market value of the collateral in one lump sum because you can keep your personal property at a lower value than you originally purchased it for.  In any case, make sure to seek the advice of competent bankruptcy lawyer to check if redemption is the right thing for you.

Stephen Trezza — Bankruptcy Lawyer