Can I Keep my Leased Car During Bankruptcy?

Yes, it is possible to keep a leased car if you file for personal bankruptcy in Canada, but certain conditions will apply.

First, some background. There are two types of creditors: secured and unsecured. Unsecured creditors are included in a bankruptcy; once the bankruptcy starts, you are not allowed to pay them. Secured creditors have security registered against one of your assets, such as a car or a house; if you don’t pay them, they can repossess the asset.

Your leasing company is obviously a secured creditor; the car is the asset that they are holding as security; if you don’t pay them, they can seize the vehicle, whether you are bankrupt or not.

Legally then you can keep a leased vehicle if you go bankrupt, provided you continue making your lease payments, and assuming the leasing company agrees. Most leases contain a clause that says that “in the event of insolvency, the leasing company can terminate the lease, and repossess the vehicle”. In most cases they won’t do that, because they would prefer to continue getting lease payments for the life of the lease, but legally in many cases they can repossess the vehicle.

Therefore if you plan to go bankrupt, it is wise to review your lease agreement, and discuss it with your leasing company, to confirm that they will not take your vehicle if you go bankrupt.

There is, however, another issue to consider, and that is the issue of whether or not you should keep the car.

Can I Keep my Leased Car During Bankruptcy?

If you are experiencing financial problems, it may be because your expenses are too high each month. Giving up the car may reduce your monthly expenses, because you are no longer making lease payments, insurance payments, and paying for gas, repairs and maintenance. If you can survive without the car, perhaps by taking public transit, giving up the car may be a good option.

If you need a car, it may still make sense to surrender the leased car, and purchase an inexpensive used car to reduce your monthly costs.

The rules regarding cars (leased or not) and bankruptcy vary in each province, we recommend you contact a Licensed Insolvency Trustee to determine which option makes sense for you.