The Short Answer
Yes, you can keep your car lease if you file bankruptcy — but you also have the option to walk away from it. If you want to keep the lease, you simply continue making your monthly payments as usual. If you want out, you can surrender the vehicle and discharge the remaining lease obligations. The right choice depends on whether the lease fits your budget and whether anyone else co-signed it.
When filing bankruptcy you have the option to continue to pay for your car lease payment or you can opt out of your car lease payment. In a bankruptcy you can legally be released from many of your contractual obligations, this includes things like cell phone contracts, apartment leases, and even a car lease. In a Chapter 7 bankruptcy those debts will be wiped out. In a Chapter 13 bankruptcy you will pay back only a portion of the total amount owed.
For example, John Doe has one year left on a car lease and is paying $300 a month. If he does not want to continue the lease and at the time of filing a Chapter 7 bankruptcy he will return the car (after speaking with his bankruptcy attorney first) and will no longer be responsible for that $300 payment each month. Therefore, the additional $3,600 that John Doe would have paid through the end of his lease will be included in his bankruptcy. In a Chapter 7 bankruptcy the $3,600 will be wiped out. If, instead, John Doe were filing a Chapter 13 bankruptcy then he would be responsible for a portion of the remaining balance.
There are some important things to consider before deciding not to continue the lease. First, and probably the most obvious, is that you will need to return the car. If that car is your family’s only means of transportation and is a reasonable lease you may want to think twice before surrendering the lease into the bankruptcy.
Another factor to consider is if anyone else’s name is on the lease. If you and your mother, or boyfriend/girlfriend etc. have both signed the lease then once you release that lease into bankruptcy that other person becomes solely responsible for the financial obligations of that lease. For example, if John Doe is filing a Chapter 7 bankruptcy and his mother has co-signed the lease with him, she will be solely responsible for the lease payments if he surrenders the lease.
There are a number of things to keep in mind when deciding whether or not to keep your car lease when filing bankruptcy. It is important to know your options and to understand that you can surrender the lease if it is in your best interest. If you chose to keep the lease then you would just continue your monthly payments as usual. As long as you are current on all payments most things in the lease would remain the same.
Key Takeaways
- In both Chapter 7 and Chapter 13 bankruptcy, you can choose to either keep your car lease or surrender the vehicle and be released from future payments.
- If you surrender a lease in Chapter 7, the remaining balance owed through the end of the lease term is discharged — you owe nothing more.
- In Chapter 13, surrendering a lease means the remaining balance may be treated as an unsecured debt, and you may repay only a portion of it through your plan.
- If a co-signer is on the lease and you surrender it, that co-signer becomes solely responsible for all remaining payments — this is a serious consequence to weigh carefully.
- Keeping the lease means staying current on payments; as long as you are, most lease terms remain unchanged.
- Before surrendering any vehicle, speak with your bankruptcy attorney — timing and how the surrender is handled can affect your case.
Attorney Insight
The mistake I see most often with car leases is people surrendering the vehicle without realizing what it does to their co-signer. A client will come in, hand back the car, and feel relieved — then their mother or sibling gets hit with the full remaining lease balance and has no idea it's coming. The other thing that catches people off guard is the timing: if you're going to surrender a leased vehicle, how and when you do it in relation to your filing date matters. Get that conversation with your attorney before you drop off the keys.
