What Happens If I Am Leasing a Car and I File Bankruptcy?

People are often scared about what will happen to their car if they file bankruptcy and whether they will lose their car. This is question we get asked very often by clients in the Staten Island, Brooklyn, Queens, Westchester and Long Island.

In a prior post ( What Happens to My Car in Bankruptcy ) we covered what happens if the car is paid for. In another post ( What Happens If I Am Financing a Car and I File Bankruptcy? ) we covered what happens if a car is being financed,
In this post we cover what happens if the car is being leased.

The discussion regarding the debtor’s equity in the car in our earlier post ( What Happens to My Car in Bankruptcy ) still applies to the equity in a car being leased (if any, such as if there is a $1 buyout option).

The debtor basically has two options under the post 2005 changes to the Bankruptcy Code as follows:

1. Assume the Lease and Keep the Car (and Keep Making Payments).
To assume the lease the debtor has to notify the creditor in writing that the debtor desires to assume the lease. There is no official form for this, although our firm has developed a form we use for our client for this.

There is nothing more that the debtor is required to do (assuming the debtor is current with payments). There is no requirement in the Bankruptcy Code for court approval, or for filing any filing with Court in connection with the assumption.

2. Reject the Lease and Give the Car Back. Alternatively the debtor can notify the creditor that he/she will not assume the lease and can give it back and discharge the debt.