What Will Happen to My Leased Car if I File for Bankruptcy?  

What Will Happen to My Leased Car if I File for Bankruptcy?  

Written by Kale Havervold
Fact-checked by Caitlin Wood
Last Updated December 3, 2021

Knowing all the correct terms and rules surrounding bankruptcies and consumer proposals can be a tedious process. You need to know what is exempt, what you will lose, how much it will affect your credit and for how long, and so much more. For example, what will happen to your leased car if you file for bankruptcy?

Before looking into what will happen to your car if you file for bankruptcy, it is important to know that only certain types of debts are actually dealt with during a bankruptcy or a consumer proposal.

Check out this video for a brief explanation of personal bankruptcy.

Secured vs. Unsecured Debt

Generally, there are two types of debts, unsecured and secured. Unsecured debts are things like credit cards, loans, tax debts, and lines of credit. On the other hand, secured debts are things like your mortgage, a car loan, or any other debt that is tied to an actual asset.

Want to know what happens if you stop paying your credit card bills? Read this.

The types of debts that are dealt with during a bankruptcy are unsecured. Most secured debts aren’t considered during a bankruptcy. As you could imagine by its definition, a car lease is considered a secured debt and as a result, is not dealt with during a bankruptcy. Think of it more like a contract than a debt.

For more information on secured and unsecured debt, look here.  

However, what does that mean and what will happen to your leased vehicle when you file? Thankfully, that is exactly what this article will be focused on.

What Will Happen to My Leased Car if I File for Bankruptcy?  

Well, because of the nature of a lease, the leasing company has the right to take your vehicle away from you if you don’t make the required payments. However, if you are maintaining the payments and keeping them current, they do not have the right to cancel your lease. That means that as long as you keep up with your payments, the company cannot cancel your lease or take back the vehicle simply because you have filed for bankruptcy.

Click here to learn how you can get a car loan after a repossession.

If they try to cancel your lease or threaten to do so, contact your licensed insolvency trustee as soon as possible. Also, if they actually try to take away your car after you have filed, contact your trustee and they will be able to investigate the matter further. If they had no right to take the car, they will be told to return it. If they don’t, you can legally sue them for a breach of contract. Of course, if it goes to that stage, you will need a lawyer, as a licensed insolvency trustee cannot help you in that case.

Also, sometimes a leasing company will contain a clause that basically says that if you go through a bankruptcy, they can terminate the lease and take the vehicle. As a result, it is incredibly important to review all the details of your lease with an expert. While many companies will not actually take advantage of this clause, as they still want to get paid, they have the option, so you should be aware of that.

If you plan on filing for bankruptcy, it is a good idea to not only review your lease agreement, but also discuss it with your leasing company to see if they will take your vehicle or not.

What if I Want to Break My Lease?

So far, we have mainly talked about what will happen if you want to keep your car. But what about if you want to get rid of it and save money? In order to do that, you would have to break your lease, which you are legally allowed to do so. All you have to do is simply return the car to the leasing company before you file for bankruptcy. You should contact the leasing company beforehand to ask them where to take the car and/or what to do with it.

What can and can’t be included in a bankruptcy? Find out here.

However, it is very important that you keep insurance on the vehicle until the leasing company takes possession of it. If something happens to the car when you still have it, and you have already cancelled the insurance, it will make things much more complicated. In fact, this could potentially leave you still having to pay for the car.

Should I Keep My Leased Car During Bankruptcy or Not?

Now that you know that you can technically keep your lease vehicle during a bankruptcy, but can also give it back, the question now is; which should you do?

This will depend on your unique life situation. If your expenses every month being too high is a big problem for you, giving up the car will likely save you a decent amount of money. Not only on the lease payment, but also on insurance, gas, maintenance and more.

Trying to determine how much car you can afford? Try reading this.

However, if you really need a vehicle for one reason or another, it might make sense to keep the car and continue making payments, or simply find a cheaper car instead. If you only “want” the car, it can be a good idea to get rid of it, as public transit or other transportation options are often available.

Final Thoughts

The rules regarding cars and/or bankruptcy can differ slightly from province to province, so it is a good idea to reach out to a Licensed Insolvency Trustee or another expert in your area to see what the best course of action is to take. But ultimately, the choice is yours.

Before you file for bankruptcy in the first place, consider these better options.

In conclusion, your car lease shouldn’t be affected at all by your decision to file for bankruptcy. If you stop making the payments, your car can be repossessed, but if you keep up regular payments, the leasing company likely cannot take your car away, even if you are filing for bankruptcy. It is very important that you review and read through your lease in detail with an expert before ever officially filing for bankruptcy.

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In his over six-year career as a professional writer, Kale has focused on writing about finance, technology, cryptocurrency, entertainment, and sports. Kale's work has been published on Yahoo, RentHop, the Regina Leader-Post, LoansCanada.ca, and ReboundFinance.com. Kale loves to create a wide variety of personal finance-related content. Including everything from how-to guides to featured articles, to advice pieces and everything in between. Whether he’s writing about the newest piece of technology or providing tips to help people with their finances, Kale is passionate about educating Canadian consumers and making sure they have the information they need to make the best decisions.

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