The Surprising Benefits: Keeping Your Vehicle Lease under Chapter 13

 Posted on September 17, 2025 in Chapter 13

When financial struggles feel like too much to bear, one of the first concerns many people have is whether they will lose their car. Reliable transportation is essential for work, school, and daily life. If you drive a leased vehicle, the good news is that bankruptcy does not automatically mean you must give it up. Under the right circumstances, Chapter 13 bankruptcy can give you powerful tools to keep your leased vehicle while also providing broader financial relief.

At the Law Offices of Chance M. McGhee, our Boerne, TX bankruptcy lawyer uses his decades of experience to guide clients through the unique challenges of bankruptcy. We want you to understand the full picture, including the benefits, the risks, and the rules, so you can make good decisions that suit your situation.

Car Leases in Chapter 7 Bankruptcy 

In a Chapter 7 bankruptcy, you may keep your leased vehicle by assuming the lease. To do so, you must be current on your payments and agree to continue abiding by the lease terms. If you are caught up and intend to keep making payments, most lessors allow you to assume the lease without issue. 

This is straightforward, but it has a major limitation. If you are behind on payments, Chapter 7 usually does not give you a way to catch up. The leasing company may refuse assumption or quickly repossess the vehicle. That is where Chapter 13 becomes a much stronger option.

Why Chapter 13 Can Help if You Are Behind on Your Car Lease

Chapter 13 bankruptcy is sometimes called the "wage earner’s plan." It allows you to restructure your debts through a three- to five-year repayment plan approved by the court. This plan may include provisions for catching up on late lease payments.

Under the official Chapter 13 plan form used by Texas bankruptcy courts, you can list your vehicle lease, state the amount of arrears, and spread those arrears out over time. For example, if you are $1,500 behind, instead of paying it all at once, your plan might allow you to catch up in affordable installments spread over the length of the plan.

This means you stay protected from repossession as long as you follow the plan. The lease arrears are dealt with under court supervision, and the dealership is bound by the bankruptcy court’s order. For many families, this makes the difference between losing reliable transportation and keeping it.

The Role of the Car’s Lessor During Bankruptcy

Of course, the leasing company (lessor) has rights too. They can object if they think the plan is not workable, if your history of missed payments is extreme, or if you violated other lease terms. However, most lessors prefer a working lease over repossession, which often leaves them with greater losses. Once the plan is confirmed by the bankruptcy court, the lessor must honor it as long as you remain in compliance.

What Chapter 13 Cannot Do with Car and Truck Leases

It is important to be clear about the limits of Chapter 13 in the lease context. First, you cannot "cram down" a vehicle lease the way you can with a loan. With a loan, you may reduce the balance owed to the car’s actual market value. With a lease, you must continue to pay the agreed lease amount.

Chapter 13 will not lower your lease payments or forgive end-of-lease charges such as excess mileage, wear-and-tear penalties, or early termination fees. If you default during the plan, the lessor may still seek repossession with court approval. So while Chapter 13 provides powerful short-term protection, it does not rewrite the entire lease contract.

The Surprising Benefits Beyond Keeping the Car

The ability to catch up on missed payments is the most obvious benefit, but there are surprising additional advantages to using Chapter 13 bankruptcy with a leased vehicle:

Protection from Creditor Harassment

Once you file for Chapter 13, the automatic stay under 11 U.S.C. § 362 stops repossession efforts, collection calls, lawsuits, etc. This protection applies not only to your car but to all your loans. For many, this immediate relief is just as valuable as the long-term repayment plan.

Addressing Other Debts at the Same Time

Most people are also struggling with credit cards, medical bills, or past-due mortgage or tax payments. Chapter 13 allows you to deal with all your debts in one plan, not just the lease. You are not just saving your car, but fixing your entire financial picture.

More Time to Decide

Sometimes clients are unsure whether they want to keep their leased car. Chapter 13 can buy you time to make that decision. If you realize the lease is unaffordable or impractical, you may have the option to reject it. This flexibility can be a valuable safety net.

Keeping Your Car in Rural and Suburban Areas

In places like Boerne and Kerrville, public transportation options are limited. Having a car is often a necessity. Chapter 13 lets you keep driving.

Frequently Asked Questions About Chapter 13 Bankruptcy and Car Leases

Can I switch to another car during Chapter 13 if my current lease ends?

Yes, but it requires court approval. You must show that the new lease is reasonable and affordable under your plan.

What if I want to reject the lease in Chapter 13?

You can reject the lease if you decide you no longer need the vehicle. In that case, you return the car and any claim the lessor has becomes an unsecured debt included in your plan.

Does Chapter 13 hurt my ability to lease again later?

Bankruptcy appears on your credit report, but many clients are able to lease again after demonstrating consistent payments through their Chapter 13 plan. Lenders often view successful plan completion as a sign of stability.

Can I pay off car lease arrears early?

Possibly. Some Chapter 13 plans allow for early payoff of arrears if your financial situation improves, though you must work with your attorney and the trustee to ensure compliance.

Contact a Kerrville, TX Chapter 13 Bankruptcy Lawyer

Chapter 13 may not give you every advantage that comes with owning a vehicle, but it offers good options if you are behind on lease payments and want to keep your car. 

At the Law Offices of Chance M. McGhee, we have helped many clients keep their leased vehicles while they reorganize their finances. If you are behind on lease payments or weighing the pros and cons of Chapter 13, reach out today. Our Boerne, TX bankruptcy lawyer is here to guide you through the process.