Filing for bankruptcy can impact existing and future car leases. Depending on how up-to-date you are on your lease payments can determine what happens when you file bankruptcy. A professional bankruptcy attorney can help you find the options that best fit your situation.
Automatic Stay and a Trustee’s Choices
An automatic stay halts any collection action by a car lessor, including efforts to repossess a vehicle. However, if you are behind on payments, the lessor may file a motion to have the automatic stay lifted. If this happens, the lender may pursue collection of the debt.
In Chapter 7 bankruptcy cases, a trustee has the option to assume or reject the car lease. Assuming a lease means that the trustee takes on the existing lease according to its existing terms and then leases it to a new party. The bankruptcy estate will assume the lease if they believe they can make money leasing the car to the new party. If they determine they cannot make money off of the lease, they will reject it. If the lease is not assumed by the trustee within 60 days of the case being filed, the automatic stay will end. For more about whether a lease is assumed or rejected, consult with a professional bankruptcy attorney.
Options for a Debtor
As the debtor, you have two options when filing for bankruptcy. Like the trustee, you can either reject or assume the car lease. A reliable attorney can help you decide which option is best fit.
The first option would be to reject the lease and surrender the vehicle. This must be done within 45 days of the case being filed. The car lessor can sell the car and apply the proceeds to the remaining debt. If any debt is left over, this will be counted as unsecured debt. This unsecured debt can generally be discharged through Chapter 7 bankruptcy with the help of a professional bankruptcy attorney.
Your second option would be to assume the lease yourself. In this case, the lease continues without any changes to the terms. If the lender agrees to continue the lease, you should notify them within 30 days that the lease has been assumed. The lender does have the option to reject you from assuming the lease. A professional bankruptcy attorney can help you determine what laws are in effect during your case since they can vary between states.
The car lessor is not always required to respond. If they don’t, you should never assume that this means they agree to you assuming the lease. They might have decided to pursue remedies under state law, including a possible repossession.
Get Help from a Professional Bankruptcy Attorney
If you’re worried about how bankruptcy will affect your car lease, the attorneys at Parker & DuFresne are here to help. Contact us for a free consultation today, we are here to help you through every step of the process.