How to Redeem Real Property in Chapter 7

By Mike Broemmel

If you want to redeem real estate -- that is, gain ownership of it following a bankruptcy proceeding -- you need to pay fair market value for the property and pay off the outstanding loan. You cannot redeem all types of real estate. For example, in a Chapter 7 bankruptcy, you can redeem your primary residence, but not vacant land or buildings used for business purposes. The U.S. Bankruptcy Code establishes a specific procedure to follow when seeking redemption of real estate. Keep in mind the bankruptcy court must approve your requested redemption.

If you want to redeem real estate -- that is, gain ownership of it following a bankruptcy proceeding -- you need to pay fair market value for the property and pay off the outstanding loan. You cannot redeem all types of real estate. For example, in a Chapter 7 bankruptcy, you can redeem your primary residence, but not vacant land or buildings used for business purposes. The U.S. Bankruptcy Code establishes a specific procedure to follow when seeking redemption of real estate. Keep in mind the bankruptcy court must approve your requested redemption.

When Redemption Works

If you want to redeem your home, you are likely to receive significant latitude from the court and perhaps even the creditor. Homestead exemption laws, which vary from one state to another, may permit you to keep your home if you can pay for it. Therefore, if you demonstrate the ability to raise enough money to cover a majority of the amount due on the loan -- typically, through alternative financing -- redemption may be possible.

Get a free, confidential bankruptcy evaluation. Learn More

Difficulties of Redemption

For anyone, coming up with the financing necessary to redeem a property might represent a significant challenge, even in the best of times. Raising money becomes significantly more difficult, however, when you find yourself in the midst of a bankruptcy, with an obvious track record for unbalanced finances and even bad debts.

Redemption Loans

If you're a debtor facing bankruptcy, you'll be glad to know that certain lenders specialize in providing redemption loans. These companies will lend you money to pay off the creditor through the bankruptcy court. The redemption lender establishes a new mortgage on the real estate in its favor. Keep in mind that you will likely pay a higher interest rate on a redemption loan than what you paid previously, because the lender is assuming a greater risk by lending you the money and wants to be compensated for that risk. However, this type of financing may be the only option available to you to fund a redemption.

Court Approval

A redemption is not final until approved by the court. The first step is notifying the trustee assigned to your case of your intent to redeem real estate. The trustee lets you know if she approves of the proposed redemption. If the trustee approves, the court will likely follow suit. The trustee is likely to approve if no other creditors object to the proposed redemption and you have demonstrated an ability to raise the money necessary. However, if the trustee opposes the proposed redemption, the court likely will as well. Once the trustee is notified, you can prepare and file a motion with the court. Attach a copy of the actual redemption agreement entered into with the original lender to the motion. The court sets a deadline for creditors to submit an objection to the proposed redemption. Provided no objection occurs and the trustee is on board, the court will typically approve the redemption without a hearing. If objections exist, including any from the trustee, a hearing will be held, at which time you present your arguments in favor of permitting the redemption.

Get a free, confidential bankruptcy evaluation. Learn More
Can a Debtor Request Abandonment in a Chapter 7 Bankruptcy Case?

References

Resources

Related articles

How Does Bankruptcy Affect Homebuying?

Bankruptcy can give you a fresh financial start by allowing you to restructure or erase your debts under a court-supervised process. However, your bankruptcy case doesn’t go away once your court process is complete. Bankruptcy stays on your credit report and can hurt your ability to obtain credit in the future, including home loans.

What Happens When You Reaffirm a Vehicle After Bankruptcy?

Bankruptcy allows you to get a fresh start financially, clearing up debts by paying some and dismissing others. Filing Chapter 7 bankruptcy, also called "liquidation" bankruptcy, doesn’t mean you have to give up everything you own, even if you still owe money on some of your assets. If you reaffirm your obligation to pay for an asset, such as a vehicle, you can keep that asset. However, without reaffirmation, you could lose your vehicle after your bankruptcy proceedings if you still owe money on a car loan.

Can They Take My Car in a Private Bankruptcy in the US?

The vast majority of consumers file for bankruptcy under Chapter 7 or Chapter 13. Chapter 7 bankruptcy allows the court to sell any item that is not exempt under the bankruptcy laws and to distribute the proceeds from that sale to the debtor’s unsecured creditors. Chapter 13 requires debtors to make monthly payments to pay down the debts owed. The Chapter 7 process takes approximately 90 days to complete, while the Chapter 13 process typically takes between 3 and 5 years. At the end of both processes, all but certain legally excepted debts will be discharged. Since Chapter 13 involves paying down debts, you are most at risk of losing your car under Chapter 7. However, there are some ways of holding onto it.

Related articles

New York Bankruptcy Automobile Surrender Laws

Under federal bankruptcy law, a debtor may file for protection from creditors while a court oversees his financial ...

Do I Need Permission From the Bankruptcy Trustee to Finance a Vehicle?

Buying a car isn't easy once you have filed for bankruptcy. If you need to finance a car before your bankruptcy is ...

How to Deal With a Foreclosure as an Estate Executor

You have a great variety of responsibilities as the court-appointed executor of an estate, including property ...

Trustee Objection to Schedule C Exemptions

When you file for bankruptcy, Schedule C is the part of the paperwork that helps provide you with a fresh start. It ...

Browse by category