Expert: Terry Leeders - 1/14/2009

Question
Hi Terry, When filing Chapter 7 does it put an automatic stay on an auto lease? If there is equity should you try and rework the contract? Does the court put the equity into consideration, make you sell it, can you keep it?
I am also listed on this site as an "expert" in the auto business. This question is for one of my clients that leased a car and is now filing Chapter 7. I want to know how to advise her.
Appreciate your help. Thanks

Answer
When a case is filed, the automatic stay is effective towards all creditors.  Your options with a lease - 1. surrender, walk away, discharge remaining balance, 2. keep it as is, and continue the payments (called assuming the lease) or 3. You can do a redemption on the vehicle, whereby you purchase the vehicle for the fair market value of the car, pay that to the lender, and the court discharges any other balance owed. There are outside companies that offer to finance this buyout for the third option.

The court looks at the value of the vehicle, minus your exemption amount, minus the remaining balance, including the ending buyout of the loan (residual balance).  If there is no equity after these deductions, the trustee won't touch the vehicle.  If there is equity, the court has the right to sell it, pay off the lender and pay the proceeds to your unsecured creditors.