Car Leases in Bankruptcy: Can You Keep Your Leased Vehicle?

Your lease payment is due in three days. Your bankruptcy attorney keeps saying your lease "isn't a debt." And you're thinking: how does that help me keep my car?

Here's what matters: Bankruptcy law treats leases differently than car loans, and that difference determines whether you can keep driving or need to hand over the keys. The good news? If you're current on payments, keeping your lease through bankruptcy is usually straightforward. If you're behind, Chapter 13 gives you options most people don't know exist.

Why Your Car Lease Isn't Considered Debt

When you lease a vehicle, you're paying for the right to use someone else's property. You didn't borrow money. You signed a contract that says: pay us $400 monthly for 36 months, drive this car, return it when we're done.

That's not debt. It's an executory contract, which is legal-speak for "both sides still have obligations." You have to pay. The leasing company has to let you drive. Neither side is done yet.

This matters because bankruptcy handles executory contracts under different rules than credit cards or medical bills. You can't discharge a lease the way you discharge debt. Instead, you either assume it (keep it) or reject it (walk away).

Where You Report a Leased Car in Your Bankruptcy Paperwork

The court needs to know about every contract you have. For a car lease, you'll report it in three places:

Schedule A/B: Property

Part 2 of Schedule A/B asks about vehicles. Check "yes" and list the car you lease. Include the year, make, model, and note that you lease it. Don't put down a value—you don't own it, so there's nothing to value.

Schedule G: Executory Contracts

This is where the lease agreement itself gets reported. List the leasing company's name and address. Add a brief description: "2022 Honda Accord lease, expires March 2027."

Statement of Intention (Chapter 7 Only)

In Chapter 7, you file a Statement of Intention within 30 days of your bankruptcy petition. This form forces you to decide: assume the lease or reject it. You have 30 days from filing to make your choice. Miss that deadline and the automatic stay lifts, meaning the leasing company can repossess the car even though your bankruptcy case is active.

If you're filing Chapter 13, you don't file a Statement of Intention. Your repayment plan shows how you'll handle the lease.

What Happens to Your Lease in Chapter 7 Bankruptcy

Chapter 7 gives you two paths:

Assume the Lease

If you're current on payments and want to keep the car, you check "assume" on your Statement of Intention. The lease continues under the original terms. Same monthly payment. Same mileage limits. Same insurance requirements.

The leasing company cannot change the terms or raise your payment because you filed bankruptcy. The Bankruptcy Code prohibits that. You keep paying, they keep letting you drive.

One catch: You need to stay current. Fall behind after you file and the leasing company can ask the court to lift the automatic stay and take the car back.

Reject the Lease

If you're behind on payments, can't afford the lease anymore, or just want out, you check "reject" on your Statement of Intention. You return the car. Any remaining balance,early termination fees, excess mileage charges, damage fees,becomes an unsecured debt that gets wiped out in your discharge.

This is powerful. Most lease contracts have early termination clauses that can hit you with thousands in penalties. Reject the lease in bankruptcy and those penalties disappear.

If You're Behind on Payments

Chapter 7 doesn't let you catch up on missed lease payments the way Chapter 13 does. If you're three months behind, you have two realistic options:

• Pay the arrears in full before you file, then assume the lease
• Reject the lease and let the debt discharge

Some leasing companies will negotiate if you call them before filing. They'd rather have you current and paying than take the car back and auction it. But there's no guarantee.

What Happens to Your Lease in Chapter 13 Bankruptcy

Chapter 13 gives you more flexibility because it's built around a 3-to-5-year repayment plan.

If You're Current

Your lease continues as usual. You keep making the monthly payment directly to the leasing company. The lease doesn't become part of your repayment plan unless you're behind.

If You're Behind

This is where Chapter 13 shines. You can include the arrears in your repayment plan and catch up over time. The automatic stay stops repossession. You keep the car. And you spread the past-due amount across 36 to 60 months.

Example: You're $2,400 behind on your lease. Your Chapter 13 plan is 48 months. You pay $50 per month through the plan to catch up, plus your regular lease payment directly to the leasing company. Once you finish the plan, you're current and the lease continues.

One requirement: You have to keep making your regular lease payments on time during the Chapter 13 case. Fall behind on the ongoing payment and the leasing company can ask the court for relief from the automatic stay.

If You Want to Reject the Lease

You can reject a lease in Chapter 13 the same way you can in Chapter 7. Return the car, and any remaining balance becomes part of the unsecured debt in your plan. Depending on your plan, you might pay back a percentage of that debt or nothing at all.

Can a Leasing Company Repossess Your Car During Bankruptcy?

Not without court permission. When you file bankruptcy, the automatic stay goes into effect immediately. That stay prohibits creditors from taking collection action, including repossession.

But the stay isn't permanent. The leasing company can file a motion for relief from stay if:

• You fall behind on payments after filing
• You don't file your Statement of Intention on time (Chapter 7)
• You reject the lease
• Your insurance lapses

If the court grants the motion, the automatic stay lifts and the leasing company can repossess the vehicle even though your bankruptcy case is still active.

What About Early Termination Fees and Excess Mileage?

Lease contracts are packed with potential fees. Early termination penalties. Excess mileage charges at $0.25 per mile. Wear-and-tear damage costs. If you assume the lease, you're still on the hook for these fees when the lease ends.

If you reject the lease, every fee,past, present, and future,becomes an unsecured debt. That includes:

• Unpaid monthly payments before you filed
• The remaining balance on the lease
• Early termination penalties
• Excess mileage charges
• Damage repair costs

All of it gets discharged. The leasing company can claim these amounts as unsecured debt in your case, but they can't come after you personally once you get your discharge.

Can You Lease a Car After Bankruptcy?

Yes, but not immediately. Most leasing companies require credit scores in the 600s. A Chapter 7 discharge tanks your score by 130 to 200 points. A Chapter 13 filing drops it by 100 to 150 points.

Timeline for leasing after bankruptcy:

• Chapter 7: Expect to wait 2 to 3 years after discharge before you can lease with decent terms. Some subprime lenders will lease to you sooner, but the money factor (lease interest rate) will be brutal.
• Chapter 13: You're in an active bankruptcy for 3 to 5 years. Most leasing companies won't touch you during that time. Once you complete the plan and get your discharge, you're in the same boat as a Chapter 7 filer.

One option: If you're in Chapter 13 and you need a different car, you can ask the trustee for permission to enter a new lease. You'll need to show that the lease payment fits in your budget and that you genuinely need the vehicle. Approval isn't guaranteed.

Should You Keep Your Lease or Walk Away?

This depends on three numbers:

1. Your monthly payment vs. Your income. If the lease eats up more than 15% of your take-home pay, it's too expensive post-bankruptcy. You need breathing room.

2. How much you're behind. In Chapter 13, you can catch up. In Chapter 7, you probably can't. If you're $3,000 behind and filing Chapter 7, reject the lease.

3. How much longer the lease runs. If you have 6 months left, keep it and finish. If you have 30 months left and the payment is killing you, walk away.

One more factor: Do you actually need this car? If you're leasing a $500/month SUV but you could buy a $5,000 used sedan outright after bankruptcy, reject the lease and start saving now.

How to Handle Your Lease Before You File

If you know you're filing bankruptcy soon, take these steps:

• Get current if you can. One or two missed payments is manageable. Four or five puts you in a tough spot in Chapter 7.
• Check your lease balance. Call the leasing company and ask for a payoff quote and the early termination amount. This helps you decide whether to keep or reject.
• Review your insurance. Make sure your coverage meets the lease requirements. Lapses can trigger a motion for relief from stay.
• Don't hide the car. Some people think they can avoid listing the lease if they park the car at a friend's house. That's bankruptcy fraud. Always disclose.

If you're planning to assume the lease, reach out to the leasing company before you file. Some have specific departments that handle bankruptcy assumptions. Getting ahead of this can smooth the process.

Thinking about filing bankruptcy? Our free bankruptcy screener takes 2 minutes and shows you whether Chapter 7 or Chapter 13 makes sense for your situation.

What Happens If You Don't File a Statement of Intention?

In Chapter 7, you have 30 days from filing to submit your Statement of Intention. Miss that deadline and the automatic stay lifts for the lease. The leasing company can repossess the car without asking the court for permission.

This is one of the most common mistakes pro se filers make. They assume the lease continues automatically. It doesn't. You have to affirmatively assume it by filing the Statement of Intention on time.

If you're using an attorney, they'll handle this. If you're filing on your own, set a calendar reminder for day 25 after filing. Don't wait until day 29.

Can You Negotiate a Lease Assumption Agreement?

Sometimes. Some leasing companies require you to sign a reaffirmation agreement before they let you assume the lease. A reaffirmation agreement makes you personally liable for the lease even after your bankruptcy discharge.

This is controversial. The Bankruptcy Code doesn't require reaffirmation for leases the way it does for secured debts like car loans. But some leasing companies push for it anyway.

If the leasing company demands reaffirmation, you have leverage. They don't want the car back,repossession and auction costs them money. You can negotiate:

• A lower monthly payment
• Waived late fees
• Extended lease term to reduce the payment

Get any agreement in writing before you sign. And if you're working with an attorney, have them review it first. Reaffirmation agreements can be dangerous because they make the debt survive your bankruptcy discharge.

The Bottom Line

Your car lease survives bankruptcy if you're current and you want to keep it. If you're behind or the payment is unsustainable, Chapter 13 lets you catch up or Chapter 7 lets you walk away clean. The key is understanding that a lease isn't debt,it's a contract you either keep or reject. Miss the 30-day deadline to file your Statement of Intention in Chapter 7, and the choice gets made for you when the leasing company takes the car back.