Have you have ever considered Chapter 7 Bankruptcy but wanted the answer to the question: What Happens To My Automobile Lease In A Chapter 7 Bankruptcy? We hear that question all the time. This article explains what happens to your automobile lease after you file Chapter 7 bankruptcy.
If you have an automobile lease when you file Chapter 7 you can either keep it or turn it in.
The answer in your bankruptcy case depends upon whether you want to keep the car and continue to make the automobile lease payments or return the car and stop making the automobile lease payments. If you want to keep the car, you may “Assume” the lease and continue to be responsible for the payments, and if you don’t, you may “Reject” the lease and it will be discharged along with your other debts.
When you file a Chapter 7 bankruptcy, the court will assign a trustee to administer your case. The Trustee’s job is to search your assets to find anything valuable that can be sold to raise money to pay your creditors (and pay the trustee’s fees). The Trustee may, within 60 days of the filing of your case, “Assume” (keep) or “Reject” (terminate) any lease or contract that has not been completed (Executory Contracts). The trustee usually rejects personal property leases because they don’t profit your creditors. When the Trustee rejects the lease, the debtor is allowed to make her own choice whether to “Assume” the lease and continue to pay the monthly payments or “Reject” it and allow it to be discharged along with the other debts.
Assume the Automobile Lease – Keep the Car And Make Lease Payments
If the trustee doesn’t assume the automobile lease, the chapter 7 debtor may assume it. To assume the lease a debtor must do two things: First, the debtor must notify the lessor in writing that the debtor wants to assume the lease. You may file a “Statement of Intention for Individuals Filing Under Chapter 7” to state your intention. Your leasing agent may, but doesn’t have to agree to the assumption. A leasing agent may require the debtor to pay any outstanding late or missed payments as a condition to allowing the assumption. The debtor has the right to retain the property when she confirms her agreement in writing. The bankruptcy court doesn’t have to approve the assumption. It is a private agreement between the debtor and the automobile leasing agent.
Reject The Lease and Return the Vehicle
A debtor doesn’t have to do anything to reject the lease other than stating her intent to reject it. The trustee has 60 days to decide whether or not to assume the lease. During this 60 day period, the leasing agent may not repossess the car. And, the debtor can use the car without paying for it. The court will discharge those missed payments too. The debtor shouldn’t abuse this privilege. The debtor should insure the vehicle and continue to properly maintain it.
Is An Assumed Lease The Same As A Reaffirmation Agreement?
No. A lease assumption is not the same thing as a reaffirmation agreement. Automobile leases and loans secured by an automobile are treated differently in bankruptcy.
Reaffirmation Agreements Don’t Apply To Automobile Lease Agreements:
A reaffirmation agreement is an agreement that the automobile loan will not be discharged in bankruptcy. The debt will continue to be the debtor’s personal obligation in the future. In exchange, the debtor has the right to keep the car as long as the loan payments are made. The debtor must reaffirm the debt or pay the lender what the automobile is worth if she wants to keep it. If the lender and the debtor agree to reaffirm the loan, they may enter into a reaffirmation agreement.
A reaffirmation agreement is an agreement between a creditor and a debtor that the automobile loan will not be discharged. The debt will continue to be the debtor’s personal obligation in the future. The debtor has the right to keep the car as long as she pays the loan payments. Bankruptcy law requires a lender and debtor to file the reaffirmation agreement with the court. The court must approve the agreement. If it does, the debt will not be discharged. The lender may collect the debt after the case is over. The creditor may repossess the car if the payments are not made. If you change your mind about your reaffirmation agreement, you must reject it before the court grants a final discharge. After that, it is final, permanent.
Automobile Lease Assumption Agreements:
Leases fall into a separate category of debts when it comes to filing bankruptcy. Leases are ongoing contracts. They are not “debts”. A lease differs from a loan. You expect to return the vehicle to the creditor at the end of a lease. You expect to keep it at the end of the loan. For this reason, a lease assumption agreement does not have to be filed with or approved by the court. If the parties agree to an assumption, the debtor has a right to keep the car. Many courts hold that a leasing agent must file and receive the court’s approval of a reaffirmation agreement. If the parties don’t file a reaffirmation agreement the assumed lease will be discharged.
Call the skilled Michigan Chapter 7 Bankruptcy Lawyers at Bredow Law today for a consultation. Our attorneys will guide you through the process and assist you in getting a financial fresh start. Call us and ask us about our affordable Zero Down Bankruptcy Program today.