Can I Keep My Car Lease if I File Bankruptcy?

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.