Filing for bankruptcy in New Jersey raises many questions, especially about leased property like vehicles. People often ask whether bankruptcy protects a leased car or puts the lease at risk. The answer depends on the type of bankruptcy and the decisions made during the process.
How bankruptcy treats leased vehicles
Bankruptcy treats a leased vehicle as an “executory contract.” Both sides still have obligations. The person leasing must keep making payments, and the leasing company must allow continued use of the car. Under both Chapter 7 and Chapter 13, the filer can choose to keep (assume) or end (reject) the lease.
Keeping the lease during bankruptcy
To keep driving the leased car, the filer can assume the lease and agree to continue making regular payments. In Chapter 7, the filer usually must stay current on the lease before and during the case. In Chapter 13, the filer can include the lease payments in the repayment plan, which can make them more manageable.
Ending the lease without penalty
Bankruptcy also lets the filer end the lease early without facing the usual financial consequences. If the filer rejects the lease, the leasing company takes the vehicle back. The remaining balance owed on the lease becomes unsecured debt. Bankruptcy can discharge this debt and remove the filer’s responsibility for it.
State-specific considerations
New Jersey follows federal bankruptcy laws and offers state exemptions that protect certain property. These exemptions do not cover leased cars because the filer does not own them. However, they can protect other assets, which can free up funds and make it easier to keep the lease.
When deciding whether to keep or surrender a leased vehicle in bankruptcy, consider the monthly cost, the condition of the car, and long-term financial goals. Making a clear and informed choice can help create a more stable financial future.
