When you purchase a vehicle, the lender usually retains a security interest in the vehicle. Having a security interest protects the lender against a loss if the borrower defaults on the payments. Once the default occurs, the lender can go and pick up the car. This is called repossession. But the borrower’s rights to the vehicle don’t end after repossession. In Texas, the borrower has the right to redeem the vehicle any time before the lender disposes of the property by paying off the amount owed plus reasonable expenses incurred by the creditor. The borrower continues to have the right to redeem the property until the lender disposes of the property through a sale. Before the lender can sell the property they must give the borrower notice of the sale, so the borrower should know the point at which their rights to redemption are cut off.
Redemption may not be possible for most borrowers without help because if they had the money to pay off the loan then they probably wouldn’t have defaulted on the loan in the first place. However, there are lenders that specialize in providing borrowers loans for redeeming property. The interest rates are usually high on these types of loans, but if the borrower needs a vehicle and has no other options, then a redemption loan is a way to keep their vehicle. Chapter 13 bankruptcy is an alternative to redemption. Chapter 13 protects a debtor’s rights in a vehicle even after it is repossessed as long as it hasn’t been sold to a third party yet. Lenders are required to return a repossessed vehicle to the borrower after the borrower files bankruptcy. The secured loan is paid in the Chapter 13 plan.