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Redemption refers to a seller’s right to repurchase something sold by returning the purchase price to the buyer.  It is often used in the context of municipal bond sales, the sale of shares of stock in a corporation, or foreclosures on real property.

In bankruptcy proceedings, redemption is a method for avoiding a lien.  Section 722 of the Bankruptcy Code provides that an individual debtor may redeem consumer goods that are subject to a lien.  Section 722 gives this right only to “individual” debtors and not to partnerships and corporate debtors.  If the property is exempted under section 522 or has been abandoned under section 554, redemption may be done by paying the lien holder for the value of the property and not the entire amount owed on the debt.  This allows the debtor to retain his or her property and avoid the high replacement cost that might be required if the secured creditor took the collateral.  The value of collateral should be determined by assessing what the creditor could receive at a foreclosure sale, and not by what it would cost the debtor to replace the collateral.

Redemption may be invoked only if: a) the property was kept as a security for a consumer loan and not a business loan; b) the property is a tangible personal property.  It can’t be real estate, stocks or bonds.  In addition, the debtor’s right of redemption cannot be waived.

When the debtor and the secured creditor agree on the amount of the secured claim, redemption may be accomplished by the debtor simply paying that amount owed to the creditor in exchange for release or satisfaction of the lien.  When there is a dispute regarding redemption, the procedure is governed by Bankruptcy Rule 6008 and a motion may be filed for redemption of the property.

Inside Redemption