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Late last year, my girlfriend's car was stolen and subsequently destroyed. This car was a leased vehicle. For reasons beyond her control, the insurance had lapsed a few months prior. The vehicle is due to be returned next month, and the finance team says she needs to pay the remaining balance of the car if it is not returned, approximately 14K USD. She is not able to obtain a loan at her credit union.

What are her options for repaying the car? If she cannot pay, what then? Is this a situation where bankruptcy might be considered (she does not have the means to repay this without getting a loan)?

Note: I believe her mother is a co-signer on this lease, so preventing as much blow-back to her as possible would be best.


‡: The insurance was being paid by an aunt who failed to inform my girlfriend that she was transferring responsibility of paying to my girlfriend. As far as my girlfriend knew, the car was insured.

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    Why was the insurance lapsing "beyond her control"? – D Stanley Feb 13 '18 at 20:25
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    You've got two good answers, worth adding that there was a $14k theft/casualty loss that can be deducted on someone's return (hopefully the mother's). Not ideal, but the tax savings will help. – Hart CO Feb 13 '18 at 21:05
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    I feel like the mother should go after her sister for restitution--not in court, I mean, but within the family. How can anyone just stop paying insurance that a family member is relying on without telling them? – prl Feb 14 '18 at 5:38
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    Because your gf didn't own the car, isn't the theft from the lease provider? I think you should go to a real good lawyer real quick instead of spending time on stackexchange. I assume a lot depends on your jurisdiction. Also something to consider is wasn't lease provider responsible to inform your gf about lack of insurance? – akostadinov Feb 14 '18 at 16:08
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    As a note of resolution, she was able to talk with the lender and secure a payment plan (i.e. just continuing payments past the return date). They will re-evaluate the situation in 120 days, every 120 days, possibly writing off some of the amount. Now why they couldn't tell her this the first 5 times she called them, I don't know... – Drise Feb 14 '18 at 17:10
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Unfortunately this is going to land in her mother's lap. Since she is a cosigner on the lease she is just as responsible as your girlfriend for paying the return value. Both of them would have to declare bankruptcy to get the debt discharged.

If I were in her situation, and I could not get a loan for the remainder, I would work out a deal with my mother to pay off the lease and pay her back as quickly as possible. I would also get everything in writing to protect both of us - how much is owed, when the payments will be, consequences for late payments, etc. Just as if I were borrowing it from a bank.

You could try working something out with the financer, but with a cosigner that is presumably able to pay, I would be shocked if they settled for anything less than the full amount.

I know the last thing your girlfriend wants right now is a lecture, but this deal has four bad components that hopefully will be a learning experience:

  • Don't lease vehicles. There are cases where leasing might make sense, but it is the most expensive way to finance a car, and is usually used to get more car that you can afford.
  • Don't let your insurance lapse. The point of insurance is to protect against catastrophic losses like this.
  • Don't get someone to co-sign a loan. It is a sign that you're borrowing money for something that you can't afford, and puts tremendous risk (and probably stress) on both parties
  • Don't put someone else in charge of paying your bills. If your girlfriend had been in control of the insurance up front, this whole thing might have been avoided. The fact that someone else is paying the insurance is another sign that she couldn't afford the car.

Again, I feel sorry for her being in this situation, but at this point the only good advice I can give is to help her avoid the same mistakes in the future.

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    Yeah a leased vehicle with a co-signer just absolutely screams you can't afford this and shouldn't be doing this. Unfortunately, my father ended up doing a similar thing for someone he was trying to help out and my parents now have a leased car they didn't want. I'm sure the person he was trying to help out would have been much better off with a descent used car too. It would have cost them much less over the time they used it. – Evan Steinbrenner Feb 14 '18 at 0:43
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    @DonQuiKong , business lease is a completely different financial beast to personal Leasing (well it is in the UK) – WendyG Feb 14 '18 at 12:20
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    It is simply not true that leasing is a universally bad way to finance a car. Otherwise a good answer. – Jack Aidley Feb 14 '18 at 13:40
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    @JackAidley I admitted there might be scenarios where it makes sense, but those are probably for a business. I can't think of a valid reason for an individual to lease (rent) a car for three years and have nothing to show for it at the end. – D Stanley Feb 14 '18 at 14:07
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    @JustinOhms In other words you cosign a loan when you believe the borrower is much more credit-worthy than the bank believes. Just hang around Stack Exchange and you'll see how often the bank turns out to be right. – not_a_comcast_employee Feb 15 '18 at 4:01
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If there is a cosigner, then bankruptcy on the part of your girlfriend won't be helpful: the mother will simply be fully responsible.

The first option here should be to talk to the dealership/lessor. It's entirely possible they will be willing to work with your girlfriend in order to avoid a default. Lenders don't want defaults, they don't want to sell off your account for $0.20 on the dollar or anything of that nature. So they're often willing to make a deal - either reducing the total amount owed, or allowing payments over time. But be up front about everything immediately. Be prepared to prove it was stolen (police report, etc.); and understand that the lack of insurance probably voids the lease. That's a sunk cost though; don't try to hide any of it, just be honest and forthright and ask nicely.

Second, your girlfriend could try to obtain a personal loan (unsecured) to pay for the difference. I don't know her credit, but if it's decent it's possible to get several thousand dollars at a non-usurious rate (10-15%). It's at least worth a shot. If her credit is in the "gets random credit card offers in the mail that don't have annual fees" range, she probably qualifies for something like this. But if she's going into a lease with a cosigner, perhaps she doesn't have any/good credit - but perhaps a few years later she does now?

Third, your girlfriend should talk to her mother. She should do this anyway; the first option will possibly have a negative impact on her credit as well. It's critical to make sure she's open with her mother as well: hiding this won't be possible, and not telling her about it and letting her find out from her credit report is a big mistake.

But if the first two options don't pan out, she would have to involve her mother in some way; assuming the mother can either pay it off or get a loan herself, anyway. A reasonable solution here might be for the mother to get the personal loan and have your girlfriend pay that personal loan, though I recommend in that case that she pay her mother rather than pay the lender (so her mother can pay the lender and ensure no missed payments).

Finally: don't get another car lease, unless and until you two are financially comfortable and independent. This was a mistake going in; buying something that requires you to have a cosigner means you're buying something over your means.

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    I disagree with your last statement. When I was purchasing my first car, I was required a cosigner, not because I couldn't afford it, but from my distinct lack of credit history. Yes, it usually means, the purchase is above your means, but not always. – rcollyer Feb 13 '18 at 22:22
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    @Daniel I disagree with the idea of paying in cash. There's certainly risk involved in financing, but strictly speaking, if you can get a low interest loan with low payments and have the discipline to invest the cash you would have spent, it is financially better to keep as much of your cash invested as possible. The key is the interest rate on the loan vs the expected return on the investment. Even with young people who CAN'T get a good rate, creating a credit history has its own value that cannot be discounted. – bvoyelr Feb 14 '18 at 13:16
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    I have to disagree here - it is not about interst vs return on investment. A new car looses value so fast that that they will make any interst/investment calculations irrelevant. What you wrote applies for a house, maybe a collectors car etc. - Buying a car is spending money you will never see again. You should not spend money you do not have! – Daniel Feb 14 '18 at 13:23
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    @rcollyer You were required to get a cosigner because you took out a loan for a car. At 18, which is the only point in which someone should have no credit history, taking out a loan for a car is getting more car than you can on your own get. It's entirely reasonable to buy an inexpensive car with cash at 18, in my opinion, if there's not a family hand-me-down car available – Joe Feb 14 '18 at 16:24
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    @Daniel The number of people who hand over a credit card at the dinner table while simultaneously investing money is probably fairly large... but either way this should move to chat and/or a separate question as it's irrelevant to this answer. – Joe Feb 14 '18 at 22:11
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How about suing the car thieves for restitution? Civil cases can stick even where criminal ones do not. This is a direct result of the car being stolen. Make them pay, literally!

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    You're assuming that A) the identity of the thieves is known, and that B) they have the ability to pay even in theory. The latter is unlikely even if the former is known; people with money generally don't steal cars; and someone getting 30 cents/day stamping license plates in a prison factory won't be able to pay anything meaningful. – Dan Neely Feb 14 '18 at 16:46
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    The police never discovered who did it. They found the car torched in a parking lot. – Drise Feb 14 '18 at 16:59
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Your girlfriend needs to consult a lawyer.

Driving car with no insurance is against (almost?) every state's laws. Admitting that she did so to third parties (the dealer/lender) may not be wise.

The lease contract almost certainly specifies that the vehicle must be fully insured. Failing to live up to her end of the contract may have consequences.

She needs to consult an attorney for advice before she talks to anyone else about this. An consultation doesn't have to cost a lot of money, and might even be free, but whatever money it does cost is going to be worth it.

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    I don't believe you can have action taken against you for something you did in the past (non-criminal at least). As far as I know, this is a citation level offense, being that you get fined if you get pulled over and can't produce proof of insurance. I don't see how admitting to this after the fact (and now having fixed the lack of insurance issue) could present (state legal) problems, just as if you admit you were speeding or missed a stop sign at some point in the past. – Drise Feb 14 '18 at 20:38
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    Honestly, I don't believe so, either, but OP's GF needs to talk to a lawyer anyways, so might as well ask about that at the same time. – stannius Feb 14 '18 at 21:54
  • the best advice here. – Fattie Feb 15 '18 at 13:49
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You might be able to negotiate the value of the car down. Based on age and mileage, but beyond that, she is going to have to pay off the car.

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