What does Redemption mean?
Redemption is a bankruptcy term used in Chapter 7 bankruptcy. Individuals or joint filers can pay a lump sum payment to redeem tangible, personal, secured property that is covered by exemptions or the trustee has abandoned. The redeemed property must be intended primarily for personal, family, or household use and must collateralize consumer debt. Under Title 11 of the U.S. Bankruptcy Code, section 722, debtors must pay the equivalent of the replacement or fair market value of the secured property they want to redeem.
The advantage for a filing debtor to redeem secured property under section 722 is that the value of the loan may be more than the current value of the asset they want to redeem. Redeeming the asset allows the debtor to pay less than the original amount of the loan. Once a secured asset has been redeemed through a bankruptcy court, the creditor of the secured loan must release the lien to the debtor.
Debtors who want to redeem a secured debt must also get enough cash to redeem the asset. Redemption of property a debtor wants to keep during a Chapter 7 bankruptcy is an alternative to reaffirming a secured debt.