Many clients ask us, what happens when my lease runs out? Or, the ask, what happens if I need a new car while I am in Bankruptcy? There are both legal answers and practical answers to these questions.
First, as to a lease, a Debtor in Bankruptcy can either affirm or reject an auto lease. So, if you want to keep the car, and you can afford to keep the car, you can notify the creditor and file a Motion with the Court to accept the lease and continue forward. If the lease is not in default, and you are in Chapter 7, you may not even have to file the Motion. If you are in Chapter 13, or the lease is in default, then you will have to negotiate with the creditor, the lessor, to keep the lease in place.
Second, as to a car you own, a Debtor can choose to reaffirm a debt and continue forward making payments, or they choose to surrender the car to the creditor and the balance of the loan will be discharged when the Bankruptcy case is discharged. If the debt is reaffirmed, it is, thereafter, completely enforceable as though the Bankruptcy never happened. While reaffirmation is essentially a right, the Court has to determine if you can afford the vehicle, and the creditor may choose to ask for its collateral instead. This is a process that can only be handled with the Court. In a Chapter 13, if the vehicle was acquired more than 910 days prior to filing you may be able to “cram down” the loan amount. Moreover, in Chapter 13 you may be able to reduce the interest charged and the term of the loan. Once again, these can only occur with the Court involved in the process.
Finally, there are lenders out there who understand the process an active debtor must follow in order to get a car loan while in bankruptcy, and they will lend money to debtors for cars. These loans are more expensive, but, they are available for reasonable purchases. Most leasing companies will not lease to an active Debtor in bankruptcy.
This article is written by an attorney at Wyatt & Mirabella, PC. Always consult an attorney before making any legal decisions. To make an appointment today for a free consultation, please click here to contact us.