Can I Keep My Leased Car if I Go Bankrupt?

J. Douglas Hoyes
 


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In many areas of Canada and the United States, a car is the only reliable means of transportation. If you live in a big city you can take public transit, but if you live outside of a city a car is often the only way to get to work each day.

This can become a big problem if you get into financial difficulty and decide to go bankrupt. Will you lose a leased car in the event of bankruptcy?

In most cases, the answer is that no, you will not lose your leased car if you go bankrupt. In most cases you can keep your leased car, provided you continue making your lease payments each month. There are two important factors to consider.

First, most standard leases today contain an insolvency clause. The insolvency clause says that in the event of bankruptcy, the lender can repossess the car, whether or not your payments are up to date. Most lenders would prefer to continue to receive monthly payments; they don't want the car. However, it is possible that if you have a history of late or missed payments, the lender may prefer to seize the car.

I recommend that before you go bankrupt you get advice from your bankruptcy trustee or bankruptcy attorney about how to deal with your particular lender.

Second, you should decide for yourself whether keeping the car makes sense financially. You are going bankrupt because you have more debt than you can afford to pay. That may mean that your monthly expenses are too high. By surrendering the car you eliminate your monthly lease payments, which may make it easier for you to get back on track financially.

Of course once you surrender your car, you no longer have a car. If the vehicle was necessary for work or other purposes, you must now find a replacement. I suggest you contact friends and family to see if they can lend you a car, or perhaps help you buy a cheaper used car. Buying an “old junker" is sometimes the best short-term answer until you are back on your feet financially.

The rules regarding cars are different across the country, so you should review your situation with your financial advisor before deciding whether to keep or surrender your vehicle if you go bankrupt.

J. Douglas Hoyes is a chartered accountant, licensed trustee in bankruptcy, and co-founder of Hoyes, Michalos & Associates Inc. , one of Ontario, Canada’s largest personal insolvency firms helping people understand bankruptcy, and all of their bankruptcy alternatives. For information about bankruptcy in Canada visit http://www.bankruptcy-canada.ca and for information about keeping a leased car when you go bankrupt and personal bankruptcy information.

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