Breaking Your Car Lease vs. Using Bankruptcy

The downturn in the economy has left many people wondering about how they can break the vehicle lease on their vehicles.  Before you hand back the keys to your car, you really should consider your options.  You certainly want to consider these options before you go late on payments, if possible.

When surrendering the vehicle there are two terms that often stand out: voluntary repossession and involuntary repossession.  A voluntary repossession is when you hand the keys back to finance company and an involuntary repossession is when a “repo man” is commissioned by the finance company to take back the vehicle because you are behind on payments.  According to an article in AOL Autos, both options can result in “a substantial credit decline” and adversely affect your credit for many years to come.

So what are your options?  You can pay it off, buy out the lease, trade it in, get someone to assume the lease, or file for bankruptcy.  Whatever option you choose, if you feel you are about to get behind you should talk with the lender and try to negotiate a payment plan or see if you can settle for a lower amount.  However, if you simply cannot afford the lease you could consider bankruptcy as an option.  A Chapter 7 bankruptcy can allow you to reject the lease and discharge the debt in bankruptcy.

The next step will be to begin building your credit should you decide to file for bankruptcy relief or you have a blemish on your credit from surrendering the vehicle.  You need to establish a positive payment history, i.e., making timely payments on other debts such as other vehicle loans or mortgage payments.  Keep in mind that when financing in the future banks and other financial institutions will look to your income, savings and other factors to see if you can afford to make the required payments on the new vehicle.