Post Holiday Pitfalls for Bankruptcy part 1a

I just wrote about purchase money security interests (PMSI) and bankruptcy for the post-Christmas filer and offer this tidbit in follow-up. If you did make some PMSI purchases for the holidays and you want to make sure you or the person you gave it to is able to keep the items, then there are two options that can still offer some relief.

First, you may want to look at is 11 USC Sect. 506. This provisions allows the debt secured against most items (there are exceptions related to cars and residences) to be “crammed down”. This means that the amount that is secured is no more than the actual value of the item on the date of filing. This is helpful in a Chapter 13 because you may have purchased a $1,500.00 television, but when you file a little more than three months later (this time will be explained in another post) the television is worth only $500.00, then the amount that must be paid in order to keep the television is only $500.00 over the course of the plan.

Section 506 also comes into play in Chapter 7 in conjunction with 11 USC Sect. 722. This provision gives the debtor the right to redeem personal property that would ordinarily be exempt property by paying the creditor a lump sum in the amount of the value of that property.