Plain-English guide to redeeming exempt or abandoned personal property in Chapter 7 by paying the creditor the property's current value in a single lump sum, rather than the full loan balance.
Redemption under 11 U.S.C. 722 lets an individual Chapter 7 debtor keep certain tangible personal property - most often a car or household goods - by paying the creditor one lump sum equal to the property's current value (the allowed secured claim), not the remaining loan balance. It applies only to personal, family, or household property securing a dischargeable consumer debt that is either claimed exempt under section 522 or abandoned by the trustee under section 554. When you owe more than the item is worth, redemption can save money because you pay only what it is worth today - but the payment must be made in full at the time of redemption.
Official citation: 11 U.S.C. § 722
Section 722 gives an individual Chapter 7 debtor the right to redeem certain personal property from a lien by paying the creditor the property's current value in one payment. The statute provides that an individual debtor may redeem tangible personal property intended primarily for personal, family, or household use, from a lien securing a dischargeable consumer debt, if the property is exempted under section 522 or has been abandoned under section 554, by paying the lienholder the amount of the allowed secured claim in full at the time of redemption.
Four conditions must all be met:
Redemption is a Chapter 7 tool available to individual debtors. In Chapter 13, the comparable benefit is achieved through the plan (for example, a section 1325 cramdown), not through section 722.
The amount required to redeem is the allowed secured claim - which equals the property's value, not the remaining contract balance. Under section 506(a)(2), personal, family, or household property of an individual debtor is valued at its replacement value: the price a retail merchant would charge for property of that kind and condition, determined as of the petition date.
This is what makes redemption powerful when a debtor is upside down on a loan. If you owe $14,000 on a car worth $8,000, you can redeem the car for roughly $8,000 and the $6,000 deficiency is discharged with your other unsecured debt.
The catch: section 722 requires payment of the allowed secured claim in full at the time of redemption. Redemption is a single lump-sum payment - the statute does not allow the debtor to redeem in installments.
Because few debtors have a lump sum on hand, specialized redemption-financing lenders exist. They pay the creditor the redemption amount and then finance the (usually much smaller) sum for the debtor under a new loan. That new loan carries its own interest rate and terms, so the debtor should compare its total cost against reaffirmation before proceeding.
For secured personal property, an individual Chapter 7 debtor states one of three intentions under section 521(a)(2):
Redemption is accomplished either by agreement with the creditor or, if value is disputed, by motion under Federal Rule of Bankruptcy Procedure 6008. On the debtor's motion and after notice and a hearing, the court may authorize redemption and, if necessary, determine the property's value. The debtor must also have timely filed and performed the statement of intention required by section 521(a)(2).
Redemption is a Chapter 7 option under 11 U.S.C. 722 that lets an individual debtor keep tangible personal property by paying the secured creditor a single lump sum equal to the property's current value - the allowed secured claim - rather than the full contract balance. The lien is then released and the property is yours free and clear.
You pay the allowed secured claim, which equals the property's value, not the loan balance. For personal, family, or household goods of an individual debtor, section 506(a)(2) values the property at its replacement value - what a retail merchant would charge for property of that kind and condition - measured as of the petition date. If you owe $14,000 on a car worth $8,000, you redeem for roughly $8,000.
Only tangible personal property intended primarily for personal, family, or household use, that secures a dischargeable consumer debt, and that is either claimed exempt under section 522 or abandoned by the trustee under section 554. Common examples are vehicles, furniture, and electronics. Real estate cannot be redeemed under section 722, and business property generally does not qualify.
No. Section 722 requires payment of the allowed secured claim in full at the time of redemption - a single lump sum. Because many debtors cannot pay a lump sum, specialized redemption-financing lenders exist that pay the creditor and then finance the (usually lower) redemption amount for the debtor; that new loan carries its own interest rate and terms.
These are the three choices an individual Chapter 7 debtor states for secured personal property under section 521(a)(2). Surrender returns the collateral to the creditor. Reaffirmation keeps the property by agreeing to remain personally liable on the full debt under a new contract (section 524(c)). Redemption keeps the property by paying only its current value in a lump sum and extinguishing the lien - often the cheapest option when the collateral is worth less than the balance.