How Could Chapter 7 Bankruptcy Affect Your Car Lease?

If you lease your car and bankruptcy is on the table, the first thing on your mind is: Will I get to keep my car, or will filing Chapter 7 make things worse?

Here’s the short answer: Chapter 7 bankruptcy in South Alabama gives you choices with your car lease. You’re not powerless, and you don’t have to let fear—or your leasing company—decide for you. Whether you want to keep driving or walk away clean, the right legal plan can make all the difference. Hollinger Connor, LLC have helped people just like you take control of their car lease, protect what matters most, and build a path to real debt relief.

Here’s a breakdown of exactly how Chapter 7 affects your car lease, what options you have, and how to make the decision that’s right for your family, your business, and your future.

The Truth About Car Leases and Chapter 7 in Alabama

A lot of folks in South Alabama think of a car lease as just another car loan. It isn’t. A lease is more like a long-term rental with an expiration date. You get the use of the car, but the dealership or leasing company owns it. Each month you pay for the right to drive it, usually with a mileage limit, and at the end, you either turn it in, buy it, or sometimes renew the lease.

That difference matters a lot in bankruptcy court. With a loan, you’re the owner (with the bank as lienholder). With a lease, you’re renting. When you file Chapter 7 bankruptcy, leases fall into a special category called “executory contracts.” That means you can either keep it going (assume it) or end it early (reject it)—and bankruptcy law lets you make the call.

Keep the Lease or Let It Go?

So, what are your real-world choices for your car lease if you’re filing Chapter 7 in Alabama?

1. You Can Assume the Lease—And Keep Driving

If you need your car for work, for your kids, or just to get around town, you may want to assume the lease. That means you tell the bankruptcy court you want to stick with the contract. But there are some catches:

• You must be current on payments. If you’re behind, the leasing company probably won’t let you keep the car.
• You agree to follow the lease rules. Mileage limits, wear and tear, and everything else in the original contract still apply.
• You’re back on the hook. If you default later, the bankruptcy won’t protect you from future collection on the lease.

But if you can keep up, the court usually won’t force you to give up your leased car just because you filed bankruptcy. Most leasing companies are happy to keep a paying customer. If this sounds like your situation, you’ll want a seasoned bankruptcy attorney in Mobile, AL to help you handle the paperwork and make sure you don’t get tripped up by the fine print.

2. You Can Reject the Lease—And Walk Away Clean

For many people, a car lease is a heavy chain: high monthly payments, expensive mileage penalties, and an end-of-lease buyout that’s just not worth it. Chapter 7 bankruptcy gives you the power to break that chain. By rejecting the lease, you:

• Turn in the car. You’ll schedule a return, clean it out, and hand over the keys.
• Wipe out the debt. Any remaining payments, early termination fees, or mileage charges get rolled into your bankruptcy case—and are almost always wiped out in your Chapter 7 discharge.
• No more late notices, no more collections. The lease debt is gone for good.

Rejecting a lease isn’t “giving up”—sometimes it’s the smartest financial move you can make. Want to talk through your own numbers? Schedule a confidential review with our bankruptcy attorney and see if walking away gives you the clean slate you need.

3. What If You’re Behind on Lease Payments?

This is one of the top reasons people in south Alabama consider bankruptcy in the first place. Maybe you missed a few payments because of job loss, illness, or just falling behind. Filing Chapter 7 can temporarily pause repossession thanks to the automatic stay, but here’s what you need to know:

• If you want to keep the car, you usually must catch up on missed payments fast—sometimes before the bankruptcy case is done.
• If you can’t catch up, or the lease company refuses to let you catch up, you can reject the lease and have the unpaid payments discharged with your other debts.

What Happens If Your Leased Car Gets Repossessed During Bankruptcy?

Some folks file bankruptcy right after their car has already been taken back. Or, the leasing company asks the court for permission to repossess if you’re behind on payments. Here’s the good news: Even if your car gets repossessed after you file, you’re generally not on the hook for any leftover debt, fees, or penalties from the lease. That gets discharged in your Chapter 7 too.

So while you might lose the car itself, you won’t keep getting bills or lawsuits about it. Learn about your protections here.

What About Getting Another Car After Bankruptcy?

One of the biggest worries for people in bankruptcy is, “Will I ever qualify for another car?” The answer is yes, though you’ll need to be realistic about down payments and interest rates for the first year or two. Many local dealerships in south Alabama have programs for people who’ve gone through bankruptcy. Some even view folks with a fresh discharge as better risks (no more crushing debt, and more disposable income).