What Happens to a Car Lease in Chapter 7 Bankruptcy?

Find out what happens to your car lease in Chapter 7 bankruptcy.

By , Attorney

What will happen to your car lease in Chapter 7 bankruptcy depends on whether you want to keep the car or give it back to the dealer. If you decide keeping the vehicle is an affordable option, you can "assume" or keep the lease in place as long as the person holding your lease or "lessor" agrees.

Most lessors will let you assume a car lease if you aren't behind on the monthly payment and can continue making it. Sometimes lessors will even agree to modify your payments if you're behind. However, if you've exceeded the allowed mileage or damaged the car, you might be better off giving the vehicle back to the lender.

Keep in mind that if you have excellent lease terms, the trustee might want to assume the lease for the benefit of your creditors, but such situations are rare. A local bankruptcy lawyer will be in the best position to explain your options.

Can I File Chapter 7 Bankruptcy on a Leased Vehicle?

Absolutely. And you have options. If you have a leased car and you file for Chapter 7, you'll decide whether you want to keep it or give it back to the lessor.

It's an important decision that comes with consequences. If you assume the car lease, the lease will continue in full force, so before deciding whether to keep a leased car, review the written lease.

Can you still afford the terms? Have you exceeded mileage limitations? Also, check whether the lease contains any other undesirable clauses, odd term lengths, or fees that could prove expensive.

Unless the car is your only means of transportation, surrendering it might be the better financial option.

How to Keep or Surrender a Leased Car in Chapter 7: The Process

You'll tell the bankruptcy court and the lessor whether you intend to assume the lease or surrender the car on the Statement of Intention for Individuals Filing Under Chapter 7 ("SOFA") form.

You must file the form within 30 days of the bankruptcy filing or by the 341 meeting of creditors date, whichever is earlier. You must also send a copy of the SOFA form to the lessor holding your lease.

If you don't file and mail the form within 30 days, the automatic stay order stopping the lessor from taking your car could terminate early. An easy way to prevent forgetting to file the SOFA form, which can happen, is to file it along with the bankruptcy petition.

But that's not all you must do. Keep reading to learn the additional steps.

Keeping a Leased Car in Chapter 7 Bankruptcy

To start the process, you must notify the car lessor in writing that you want to assume the lease. The lessor doesn't have to agree to let you assume the lease and will be more agreeable if you're current on your payment. If you're behind, you can ask the creditor to revise your payment terms.

If the car lessor says yes. A lessor who agrees to let you assume the lease can also require you to cure any outstanding defaults. If you agree to the terms, you must notify the car lessor in writing within 30 days that you assume the lease.

If the car lessor says no. If the car lessor doesn't agree that you can assume the lease or you can't work out an agreement, the lessor can pursue its remedies under state law, which usually means repossessing the car.

If the car lessor doesn't respond. Don't rely on a lessor's silence as an agreement to continue with the lease. The car lessor might have already decided to pursue its state law remedies.

How to Get Out of a Car Lease Using Chapter 7 Bankruptcy

If you decide to "surrender" or give a leased car back in Chapter 7, you'll indicate your intention on the SOFA bankruptcy form. The car lessor will contact you or your attorney and arrange to pick it up. After that point, what happens to the vehicle is no longer your concern and you can wash your hands of it.


One of the benefits of filing for Chapter 7 is that you can return a leased car and erase your lease obligations. Any amount owed after returning the vehicle is an "unsecured" debt that will be "discharged" or wiped out in your Chapter 7 case.

The Bankruptcy Trustee's Decision to Assume or Reject the Car Lease

The Chapter 7 trustee appointed to oversee your case also has the right to assume the car lease in bankruptcy, but it rarely happens. The trustee would only assume a lease if it generated money for creditors.

For instance, suppose the trustee could lease your car to someone for more than you're paying. In that case, the trustee would assume the lease. If the lease isn't very valuable, the trustee will reject it.

However, most trustees don't actually "reject" leases. Instead, the lease is rejected automatically if the trustee doesn't assume it within 60 days of the case filing. At that point, the automatic stay ends, and the lessor can pick up the car.

If you're in the process of negotiating terms with the lessor when the 60 days expire, don't worry, you're protected. The automatic stay will remain in place.

Can I Lease a Car After Filing for Chapter 7 Bankruptcy?

Yes, but how soon after your Chapter 7 case will depend on whether you're willing to pay more than what you might otherwise pay. Your car financing and lease options will become more reasonable as your credit improves. Learn more about what you can do after bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

Statement of Intention for Individuals Filing Under Chapter 7

Chapter 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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