Bankruptcy should not be unpleasant, and it does offer great promise in the form of a “fresh start.” But, it does not have to leave you destitute. You may be able to keep a leased or financed car.
Most people need a car to get to work, take children to school, and take care of basic living necessities like food. Bankruptcy courts recognize the realities of transportation, and they do try to help you save your car.
What happens to a leased car in bankruptcy? When a consumer files for Chapter 7 bankruptcy, he or she has two choices regarding a car lease.
First, the consumer may surrender the leased car. All obligations to the creditor are erased under Chapter 7 bankruptcy laws.
A consumer who wishes to keep a leased car may do so by continuing to make the lease payments on time. If this is possible, and the consumer wishes to keep the car, continuing payment is the way to save the car from the bankruptcy process.
In the case of a financed car, there are three options in addition to surrendering the car, which no one wants to do.
If the consumer is current on car payments and wishes to keep the car, he or she may be able to continue payments and keep the car. Whether this is possible depends on the creditor’s approval.
If the creditor does not agree to continued payments on the car, the consumer can reaffirm the debt. This essentially means recommitting to pay the entire amount owed. The downside to reaffirming debt is that it can never be discharged in the future. This is something to consider very seriously. The upside, however, is that the consumer can keep the car and continue making payments on the debt.
The third option is called redemption. The consumer can redeem, or purchase, the car from the creditor at fair market value. Redemption can be good because the consumer pays what the car is worth, rather than what is owed on the car. Many consumers do not pursue redemption because the creditor requires a lump sum payment.
Most consumers facing bankruptcy worry that they will lose the car. From losing the car, worries stretch to losing jobs, and being unable to care for their family. These fears are understandable, but usually are put to rest with a good bankruptcy attorney consultation.
Options do exist for saving leased and financed cars in bankruptcy. Most bankruptcy judges and trustees do not want to deprive a consumer of a car. Bankruptcy is a fresh start, and trustees understand that a car is vital to keeping a job and returning to self-sufficiency. Consumers can rest easier about this issue.