What Happens to a Car Lease in a Chapter 7 Bankruptcy?

June 16, 2024

When facing bankruptcy, understanding the implications for existing contracts, especially car leases, is crucial. It is important to know what happens to a car lease in a chapter 7 bankruptcy. In this context, a leased car is not regarded as a debt but a contract that can be pursued in one of two ways: assuming the lease or surrendering the vehicle.

what happens to a car lease in a chapter 7

What Happens to a Car Lease in a Chapter 7?

In a Chapter 7 bankruptcy, you must declare your decision regarding the car lease within 30 days of filing through a Statement of Intention. If you choose to assume the lease, you will continue to make payments and remain liable for any future excess mileage fees and damages. However, if you're behind on payments, the lender retains the right to repossess the vehicle unless you catch up on the arrears quickly.

Difference Between Chapter 7 and Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy offers more flexibility compared to Chapter 7. The bankruptcy trustee can opt to assume or reject the lease based on your financial interests. Back payments can be rolled into the repayment plan, potentially allowing you to keep the leased vehicle, even if you’re behind on payments.

The Role of a Statement of Intention

Filing a Statement of Intention is critical in both Chapter 7 and Chapter 13 bankruptcies. This document informs the court, trustee, and creditors whether you plan to assume or reject the lease. This not only includes car leases but other leases and debts secured by collateral.

Impact on Credit Score and Future Leases

Bankruptcy, irrespective of the chapter, affects your credit score and can make securing new loans or leases challenging. It's essential to consider your current lease payments, employment status, and future financial prospects before deciding to retain or surrender your car lease during bankruptcy.

Legal Advice and Consulting an Attorney

Due to the complexities involved, consulting with an experienced bankruptcy attorney is advisable. Laws can vary by state, and individual circumstances can greatly influence the optimal course of action. Whether remaining liable for payments or choosing to surrender the vehicle, guided legal advice ensures that you are making the best decision for your particular situation.

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