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How does bankruptcy affect the right of redemption transfer?

How does bankruptcy affect the right of redemption transfer?

Full question:

what effect will bankruptcy have on exercising a right of redemption transfer?

Category: Bankruptcy
Date: 04/07/2025
State: Alabama

Answer:

The impact of bankruptcy on exercising a right of redemption largely depends on whose bankruptcy is in question. Here, we will assume it concerns the individual holding the right of redemption for real estate facing foreclosure.

In Alabama, the statutory right of redemption allows certain individuals, including debtors, to reclaim foreclosed property within one year of the foreclosure sale. This is done by paying the amount that was paid at the foreclosure sale, along with interest and other lawful charges (Ala. Code § 6-5-248(a)). The right of redemption is triggered by the foreclosure sale, and it applies to the real estate that was sold.

Alabama's redemption statutes aim to prevent the forced sale of real estate and to give the debtor or their creditors the opportunity to benefit from any increase in property value during the redemption period (Memorial Shrines, Inc. v. McConnell, 270 Ala. 266, 117 So.2d 684, 693 (1960)).

Importantly, a debtor may still redeem real estate even after filing for Chapter 7 or Chapter 13 bankruptcy. The bankruptcy estate includes all legal or equitable interests of the debtor in property as of the case's commencement (11 U.S.C. § 541(a)(1)). Thus, the right of redemption can be considered an equitable interest in the property.

To exercise the right of redemption under Alabama law, the debtor must make a lump sum cash payment covering the entire purchase price paid at the foreclosure sale, plus interest, taxes, and any other lawful charges (Ala. Code § 6-5-253(a)).

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What assets are affected by bankruptcy?

In bankruptcy, most of a debtor's assets are considered part of the bankruptcy estate, which includes real estate, personal property, and financial accounts. However, certain exemptions may apply, allowing debtors to keep specific assets. In Alabama, for instance, a debtor may retain their primary residence and necessary personal items under specific limits. It's important to consult local laws for detailed information on asset protection during bankruptcy proceedings.

What assets are not protected in bankruptcy?

Assets not protected in bankruptcy typically include luxury items, second homes, and investments that exceed exemption limits. Additionally, any property acquired after the bankruptcy filing does not fall under the exemptions. In Alabama, certain non-exempt assets may be sold to pay creditors. Always check local laws for specifics on asset protection and exemptions.

What assets do you lose in bankruptcy?

In bankruptcy, debtors may lose non-exempt assets, which can include valuable personal property, investment accounts, and additional real estate. The bankruptcy trustee may liquidate these assets to repay creditors. However, many essential assets, like a primary residence and necessary personal belongings, may be exempt under Alabama law. It's crucial to understand which assets are exempt and non-exempt in your situation.

What is the right of redemption in bankruptcy?

The right of redemption allows a debtor to reclaim foreclosed property by paying the foreclosure sale price plus interest and other charges. In Alabama, this right exists even after filing for bankruptcy, allowing the debtor to recover their property within a year of the foreclosure sale. This right is considered an equitable interest in the property and is part of the bankruptcy estate.

How does bankruptcy affect real estate transactions?

Bankruptcy can complicate real estate transactions. When an individual files for bankruptcy, their assets, including real estate, become part of the bankruptcy estate. This means any sale or transfer of property may require court approval. Additionally, the right of redemption may still apply, allowing debtors to reclaim foreclosed properties. It's essential to consult a legal professional for guidance in navigating these complexities.

What cannot be wiped out by bankruptcies?

Certain debts cannot be discharged in bankruptcy, including child support, alimony, most tax debts, and student loans. Additionally, secured debts, like mortgages, may remain if the debtor wishes to keep the collateral. In Alabama, the right of redemption for foreclosed properties is also preserved, allowing debtors to reclaim their property under specific conditions.