Options for paying for a nonreturnable leased vehicle

Question

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.

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‡: 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.

Answer 1

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.

Answer 2

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.

Answer 3

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!

Answer 4

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.

Answer 5

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.