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Leasing a Car in Wilmington You Can No Longer Afford? How Bankruptcy Can Help


Woman sitting in front of leased car

Can't afford your lease? Bankruptcy can help

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Leasing a vehicle may seem like a good option to outright purchase of a vehicle for Wilmington, NC consumers, but if you’ve gone over the miles or want to keep the vehicle, it's usually onerous to pay off the lease. Here is a look at what happens when you get behind on an auto lease and what your options are with Chapter 7 and Chapter 13 bankruptcy.

How Leases Work and Who Uses Them

People that like to drive a new car and want to trade in for a newer model every year or two may benefit from a lease. Leasing doesn’t usually require a significant down payment, so that can be a plus. The downside is, most leases have strict mileage stipulations. If you exceed 15,000 miles average per year (common in most leases), you’ll face stiff additional mileage charges.

If there is damage to the vehicle, that can trigger a penalty payment. Plus, if you want to keep the vehicle, there is a balloon payment at the end of the lease. For those that plan to keep the car at the end of the lease, an outright purchase from the start with an auto loan is typically cheaper for Wilmington consumers than a lease and then purchase option at the end.

How Chapter 13 Works With an Auto Lease

For Wilmington consumers behind on their lease payments, Chapter 13 bankruptcy can allow you time to catch up on payments that are past-due. This is called assuming the lease in bankruptcy. The delinquent balance on the lease is added to any other past-due balances on other secured debt such as your mortgage. Depending on your income and disposable income calculations, you will also be required to pay some towards unsecured debt such as medical bills, credit cards, and back taxes.

The total past dues along with other fees make up a lump sum, and that is paid back over a period of three to five years (but typically five years) on a bankruptcy repayment plan. In addition to paying monthly towards this past due balance, you’ll have to make your regular monthly payments on your lease, home, and other normal living expenses. Chapter 13 plans don’t allow you much discretionary income to play with – your earnings have to go to costs of living and debt servicing.

How Chapter 7 Works With an Auto Lease

With Chapter 7, you usually have fewer options when it comes to past dues on secured debt such as an auto lease, auto loan, and your mortgage. If you’re current on your payments and file Chapter 7 because of other debt, the lessor can allow you to keep the lease or can reject it based on your bankruptcy filing. If you’re behind on your lease payments or have occasionally missed or run late on lease payments, the lessor will likely not allow you to keep the lease during or after your Chapter 7 bankruptcy.

Getting Rid of an Auto Lease in Bankruptcy

Both Chapter 7 and Chapter 13 bankruptcy offer a mechanism to shed a lease you no longer want or can no longer afford. Once you’re in a lease, you’re locked in for the entire lease term and can typically only get out of it by defaulting and repossession of the vehicle. In this case, the lessor can still pursue you for non-payment of the lease contract less the value of the asset. If you choose to break the lease and surrender the vehicle before you fall behind, there is usually a hefty penalty as well.

With Chapter 7 bankruptcy, you surrender the vehicle back to the lessor, and that’s it. Any debt associated with the lease will be discharged in your bankruptcy because it’s now unsecured debt because you let the asset go back to the creditor. You can wash your hands of it and walk away owing nothing. Also, Wilmington bankruptcy lets you shed medical bills, credit card, unsecured loans, and some older tax debts as part of your Chapter 7. It can be a significant financial reset for you.

In Chapter 13 bankruptcy, you can surrender the leased vehicle back to the lessor who sells the vehicle and subtracts the amount received from your debt under the lease. The remaining balance due is now unsecured debt and lumped in with other unsecured debt like credit cards and medical bills. With Wilmington Chapter 13, the bulk of your repayment goes to secured debt like a mortgage and any leftover to unsecured. You could pay little on the residual lease balance owed. To learn more about how our Wilmington bankruptcy lawyers can help you choose the best option, contact us.

Read more about consumer debt and bankruptcy here.

To find out more dealing with an auto lease when you’re drowning in debt you can’t afford, contact the Law Offices of John T. Orcutt for a free Wilmington bankruptcy consultation today. Call +1-919-646-2654 now for a free appointment today at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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