Chapter 7 debtors who have an unexpired car lease when they file for bankruptcy can either assume or reject the lease. Assuming the lease means the debtor enters into a legal contract to keep the vehicle and continue making payments for it. Assuming a car lease is sometimes a good idea, but other times it is not. An experienced Morris County Chapter 7 bankruptcy attorney can help you evaluate your car lease agreement and present financial situation to determine whether lease assumption is right for you.
Reasons to Assume a Car Lease
In certain situations, assuming a car lease may benefit a debtor in the long run. Here are some reasons a Chapter 7 debtor may want to sign a lease assumption agreement:
- Low lease payments — obtaining a car loan with a good interest rate and low payments might be difficult right after bankruptcy
- No delinquency — if you are current on car payments, you won’t have to make any catch-up payments to assume the lease
- Intent to purchase — if you plan to purchase the vehicle at the end of the lease contract, you’ll need to assume the lease
It is important to understand that a lease assumption agreement is a binding contract that you cannot rescind. When you assume a car lease, you agree to remain legally liable for the original lease contract. That means if you default on your car payments after receiving your bankruptcy discharge, you will be on the hook for the original contract as if you never filed bankruptcy. Although signing a lease assumption agreement is necessary in Chapter 7 for a debtor to keep a car that is subject to an unexpired lease, it is not always the right decision.
Reasons to Reject a Car Lease
Sometimes you are better off rejecting an unexpired car lease and surrendering the vehicle. Rejecting a lease allows the debtor to emerge from bankruptcy with no further liability for it. Reasons for rejecting a car lease often include:
- Expensive lease payments — assuming a lease you cannot afford or for a luxury vehicle is rarely a good idea, and the bankruptcy court may not allow it
- Delinquency — if you are behind on car payments, the creditor may not allow you to assume the lease, and if the creditor does approve a lease assumption agreement, you will have to catch up the missed payments
- Too many miles — Chapter 7 bankruptcy allows debtors who are or will be over their mileage limits to walk away from excess mileage charges by rejecting the lease
Deciding to walk away from a car lease can be a tough choice, especially if the vehicle serves as your primary means of transportation. A knowledgeable Morris County bankruptcy lawyer can help you weigh the pros and cons of lease assumption and rejection and provide you with advice about obtaining another vehicle after bankruptcy. If you are considering bankruptcy, contact a qualified Morris County Chapter 7 bankruptcy attorney today.