Redemption: “Buyback” Property From Lienholder

by San Antonio Attorney

One advantage of filing for bankruptcy is the ability to use the “lien stripping” provisions of the Bankruptcy Code along with its redemption provisions. Section 722 of the Bankruptcy Code allows debtors to redeem or “buy back” personal tangible property, intended for personal, family or household use, from a lien securing a dischargeable consumer debt.  This means that a bankruptcy debtor who owes $12,000.00 on a four year-old car worth only $3,000.00, can pay $3,000.00 to “redeem” the vehicle from the lien and obtain a clear title.  This is done by means of a Motion to Redeem which is filed with the Bankruptcy Court.  The motion usually contains 21 “negative notice” language. If the secured creditor does not object to the relief requested, the Court will sign the proposed order which the debtor’s lawyer submits valuing the vehicle at $3,000.00 and directing the lienholder to release its lien upon payment of the $3,000.00 value.  The secured creditor has the right to contest the value.  It can do so by filing an objection to the value.  If an objection is filed, the Court will set the matter for hearing and will hear evidence as to value.  Although under the Federal Rules of Evidence, the debtor can testify as to the value as an owner, it is best to hire an expert to provide testimony as to the fair market value of the item to be redeemed.  Sometimes this is not necessary when the value may be clear.  For example, a former U. S. Army Vietnam Veteran helicopter pilot, was forced to file bankruptcy due to the loss of his job.  One of his family “projects” was to refurbish and rebuild an old Chevy Camero.  The Dallas credit union which held the lien on the vehicle was owed about $6,000.00.  The debtor valued the Camero at $400.00.  Martin Seidler filed a motion to redeem the Camero from the credit union’s lien for $400.00.  The credit union filed an objection.  Five days before the hearing, in accordance with the Local Bankruptcy Court Rules, for the Western District of Texas, Mr. Seidler, exchanged his exhibits for the valuation/redemption hearing.  The exhibits contained the title along with various photographs of the pieces of the debtor’s  Camero located throughout the backyard of his Dallas home.  The debtor had been working on this “project” for a number of years and had completely disassembled the vehicle.  The body was just a shell with the interior, engine, springs, dash, seats and other parts located around the yard in various stages of disrepair.  Once the lender saw the photos it backed off on its position on value.  The Court signed the order authorizing the redemption at $400.00.

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