722 redemption gets its name from Section 722 of the U.S. Bankruptcy Code. It lets a debtor in a Chapter 7 case keep a piece of tangible personal property — almost always a vehicle — by paying the secured creditor a single lump sum equal to what the property is actually worth today, instead of paying off the full remaining loan balance.
Who does this help? Redemption makes the most sense when a debtor owes significantly more on a loan than the property is currently worth (commonly called being “upside down” or having negative equity). Instead of continuing to pay a loan balance that doesn't match the car's real value, the debtor can redeem it for that lower, current value and own it free and clear.
How does it compare to a cram-down? Both address the same underlying problem — a secured debt that's worth more than the collateral — but they work differently. A cram-down restructures the debt and spreads the lower payoff amount over time through a repayment plan. 722 redemption requires the debtor to come up with the full reduced amount in one lump-sum payment, often through financing from a specialized redemption lender, since few debtors have that much cash on hand.
Can it be done in a Chapter 13 case? No — 722 redemption is a Chapter 7 remedy only. In a Chapter 13 case, a debtor who wants to keep secured property at its current value typically does so through a cram-down provision in their repayment plan instead.
What's the catch? Redemption lenders typically charge higher interest rates than a standard auto loan, since they're financing a discounted payoff with no track record on the new loan. It's a useful tool, but not automatically the cheapest option — it's worth comparing the total cost of a redemption loan against simply surrendering the property or negotiating directly with the original lender.
As a Virtual Bankruptcy Assistant or Bankruptcy Petition Preparer, understanding 722 redemption — and being able to explain it clearly — helps you support the attorneys you work with and the debtors they represent. This is general information, not legal advice; debtors and attorneys should evaluate redemption options based on the specifics of each case.
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