A very common issue that needs to be addressed is can a debtor keep a vehicle that is under lease? There are several different answers to this question based on the actual situation of the debtor.

Is the debtor current or behind on payments? In a bankruptcy, the act of filing does not immediately change the rights of the creditor. For this reason, the first question is to determine where the debtor is in the payment process.

If the debtor is current, the creditor cannot take the vehicle just because the debtor has filed for bankruptcy. There is a provision in many of the lease contracts that a debtor who files bankruptcy is immediately in default. This is called an ipso facto clause which means the the very fact of filing bankruptcy is an event of default so that the creditor may take the vehicle.

Fortunately, the Bankruptcy Court for the District of South Carolina has ruled that the ipso facto clause is not enforceable when you file a bankruptcy. This does not mean that you can keep your car, but, you will have rights set forth in the Bankruptcy Code that may allow you to keep your car. Keeping your car means working with competent counsel to determine how would be best way to keep the vehicle.

Before you try to keep the vehicle, make sure that you are better off keeping the vehicle. A true lease has a provision that says at the end of the lease you have to pay something to the creditor. That amount can be substantial if the vehicle has high mileage or damage. The lender does not have to finance the balance owed.  You may have to write a very large check to keep your car.

When you assume a lease as a part of the bankruptcy case, you will become liable for any monies owed at the end of your lease. You have worked hard to get your fresh start, but, now you have another debt to pay.

Was keeping that leased vehicle worth it?  

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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