What is the difference between Redemption and Reaffirmation?
In a chapter 7 bankruptcy case, the debtor may be presented with a decision about real and personal property if the property is secured by debt. If the debtor is asked to reaffirm the debt, the creditor is asking the debtor if he or she wants to keep the property then they must sign the agreement. This agreement tells the bankruptcy court that the debtor does not want the debt discharged and wants to keep paying on it after the bankruptcy. If the debtor fails to sign the agreement, then the creditor may repossess the property after the bankruptcy case even though the debtor may be current on the payments.
Many times creditors will ask a debtor to reaffirm personal property that is worth more than what property is really worth. In that instance, the debtor may be able to "redeem" the property if the good is an ordinary household good.
When a debtor redeems property, the debtor is paying not the balance the creditor wants the debtor pay but what the property is actually worth. This could save the debtors hundreds maybe even thousands of dollars. However, in order to redeem the property, the debtor must pay the lump sum owed as opposed to a payment plan (found in reaffrimation agreements). As is often the case, debtors typically do not have that kind of cash or finances available to redeem the property. Bankruptcy attorneys can and usually require a separate fee to negotiate or workout one of these options. The redemption option is not something many creditors will inform the debtors of. Why would they? They would be getting less money if the the value is less than what is owed.
Typically, if the debtor wants to redeem personal property (and assuming the creditor opposes) the debtor can have a motion filed with the court which would give notice tohe creditor of the debtor's intent. If the creditor fails to object to the motion and call it for hearing, the judge can sign off on the motion at whatever value the debtor listed the property as in the motion. An experienced bankruptcy attorney should be able to negotiate and advise as to whether reaffirming or redeeming the property is a the ideal option.
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Greg Gilbert
Keith Maynard
