SupposeI have a car, I owe $15,000.00 on it but it’s only worth $10,000.00, is there some relief for me in Chapter 7. The answer to that question may be a very big yes. There’s a doctrine under the bankruptcy law called redemption of personal property: that means that if you’ve got personal property (really anything other than real estate but usually a car), and there’s a lien on that property and the amount you owe under the lien is significantly more than the value of the property, you can ask the court to authorize you to make a one time cash payment to the secured creditor for the value of the property.

When you do that the lien will be set aside, and you’ll own that property free and clear of the obligation. It can be a very powerful tool. It’s not used that often because there has to be a perfect storm of the facts in order to make it work:

• There has to be personal property.

• It has to be worth much less than what’s owed.

• And maybe hardest of all, the debtor has to be able to get their hands on enough cash to pay that lien in full, to the value of the property.

Of course, there’s some play for the creditor too in this scenario because the creditor can argue that the property is really worth much more than what debtor says, so the debtor will have to pay more to redeem. When you start going down that road, parties usually end up making a settlement for some middle value between what the debtor thinks it’s worth and what the creditor thinks it’s worth. But the key to making redemption work is that the debtor can pay the amount in a onetime cash payment.