If you’re contemplating bankruptcy, you might be concerned about what will happen to your leased car. In this comprehensive guide, we’ll cover everything you need to know about how bankruptcy affects your leased car and what options you have.
Is a Leased Car an Asset in Bankruptcy?
When it comes to bankruptcy, a leased car is considered a secured debt. This is because the leasing company maintains a secured interest in the asset (the vehicle). As such, a leased car isn’t usually considered during the bankruptcy process. However, the scenario may change if you decide to terminate your lease.
What Type of Debts are Considered in Bankruptcy?
In Canada, bankruptcy primarily covers unsecured debts. Unsecured debts include personal loans, credit cards, and lines of credit. These are called unsecured because they’re not tied to any collateral. On the other hand, secured debts, which include car leases and mortgages, are not considered during bankruptcy as these are tied to collateral.
The Fate of Your Leased Car Post-Bankruptcy
The leasing company has the legal right to repossess your vehicle if you fail to make the required payments. However, if you continue to make payments on time, they cannot cancel your lease, even if you declare bankruptcy.
What if the Leasing Company Attempts to Cancel Your Lease?
If the leasing company tries to cancel your lease or threatens to do so, you should immediately contact your Licensed Insolvency Trustee (LIT). Your trustee can investigate the matter further and if the company had no ground to take the vehicle, they will be requested to return it. If they refuse, you might have to resort to legal means to get your car back.
Breaking Your Leased Car Contract During Bankruptcy
If you wish to return your leased car, you can do so by simply surrendering the vehicle to the leasing company before filing for bankruptcy. However, once you surrender the vehicle, any outstanding debt becomes unsecured and may be considered in the bankruptcy proceedings.
Benefits of Breaking Your Leased Car Contract During Bankruptcy
There are several benefits to breaking your leased car contract during bankruptcy. These include:
- Financial Relief: Surrendering your leased car can save you a significant amount of money in insurance, gas, maintenance, and lease payments.
- Debt Conversion: Upon surrendering the vehicle, any outstanding debt is converted to unsecured debt and can be discharged in bankruptcy.
Leased Car and Consumer Proposals
A consumer proposal is an alternative to bankruptcy that allows you to repay a portion of your debt while keeping your assets. This implies that if you don’t wish to break your lease, you can keep your vehicle while undergoing a consumer proposal.
Should I Keep My Leased Car During Bankruptcy?
Whether you should keep your leased car during bankruptcy or not is a decision that depends on your unique circumstances. If you need a vehicle for work or family reasons, it might be beneficial to keep the car and continue making payments. However, if the car payments are a financial burden, surrendering the vehicle might be the better option.
Final Thoughts
Bankruptcy is a complex process with numerous factors to consider. If you’re unsure about how to navigate your car lease during bankruptcy, it’s advisable to consult with a Licensed Insolvency Trustee or a bankruptcy attorney. They can guide you through the process and ensure you make a decision that’s in your best interest.
Keep in mind that the rules surrounding bankruptcy can vary from province to province, thus it’s crucial to seek advice tailored to your specific situation and jurisdiction.
