What Happens to My Car Lease in a Chapter 13 Bankruptcy?

There are generally two options for your car rental when you file for Chapter 13 bankruptcy. You can continue to make your rental payments or return the car. There are, however, pros and cons for both.

Chapter 13 Leasing and Bankruptcy

A Chapter 13 bankruptcy is a long process in which you have the option of paying off your debts. In one of them, you and your bankruptcy trustee set up a repayment plan that allows you to pay off your debts over three or five years.

Even though Chapter 13 gives you the means to pay off your creditors, you may not want to keep all of your debts. This can often be the case with a rented vehicle.

How your lease is handled during your Chapter 13 depends in part on your trustee. They have until your repayment plan is approved by the court to assume your lease, where your trustee steps in to take over your lease, but this is rare.

Since lease assumption is rare, you are probably the one who decides how to deal with your auto lease debt by rejecting it or keeping it as it is. Your repayment options may vary depending on whether or not you are up to date with your lease payments.

Keep your car rental contract in chapter 13

If you’re up to date on your lease payments, need your car, and can afford your Chapter 13 repayment plan payments, you’re probably better off keeping the vehicle. There are, however, two major drawbacks to this option.

The first is that nothing changes about the length of your lease – you are still responsible for any damage or overrun suffered during your lease. This means that if your lease expires in 24 months, but you are still in Chapter 13, you will need court permission to add these unexpected costs to your repayment plan.

The second is that if your lease expires before your bankruptcy is discharged, you will need authorization to purchase your leased car or purchase another vehicle. There are provisions during a Chapter 13 that allows you to get an auto loan during an open bankruptcy.

If you choose to keep your lease while you’re in arrears, little change. The only difference is that you pay both future and overdue lease payments through your Chapter 13 repayment plan.

In fact, arrears are often paid first. You must have caught up on overdue payments before the end of the lease term, even if your bankruptcy is still ongoing.

Dismiss your rental car in bankruptcy

If your payment is not up to date when you file for Chapter 13 bankruptcy, you can also choose to reject your lease. If you do, your missed payments are part of your repayment plan, along with any additional charges for excess mileage or damage to the car.

If you choose to decline your lease, you lose the vehicle shortly after the court approves your repayment plan, even if you are up to date with your payments. In most cases, this means that you are no longer responsible for paying off the remainder of your lease. However, any damage or costs incurred during the early termination of your lease should always be factored into your payment plan.

Ready to take a more affordable vehicle?

If you are considering filing for Chapter 13 bankruptcy, or if you are currently in the process and need to terminate your lease, you have options. Chapter 13 bankruptcy contains provisions that help bankrupt borrowers get the car loan they need.

Here has Auto Express Credit, we know that bankruptcy and the lower credit rating that goes with it doesn’t have to stop you from getting the car loan you need. Let us help take the strain off your shoulders by doing the research for you when it comes to finding a dealer to work with. Not all dealerships are registered with bankrupt auto lenders, and it can be difficult to spot them in a crowd.

Instead, simply complete our quick, free, no-obligation auto loan application form, and we’ll get to work connecting you with a special financial dealership near you!

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