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How Does Assuming a Lease Differ From Reaffirming a Debt?

There are times in New York bankruptcy when the debtor wants to continue paying a creditor to keep a piece of property. (In some chapter 13 cases, the trustee wants to do the same thing.) The debtor usually has two options: “assumption” or “reaffirmation.” What is the difference between these two doctrines?

Assumption:

Assumption is an option debtors have in chapter 7 bankruptcy and trustees have in chapter 13 cases. It works with leases and not debts. What’s the difference? A lease is an “executory contract,” meaning both parties have not completely performed their obligations to each other. Commonly, these are leases for cars, retail space, or services like cell phone agreements. The lessee promises to pay on a continuous basis for something the lessor promises to provide, like space or a car. Debtors wishing to do so must assume leases within 60 days of the meeting of the creditors.

If a debtor assumes a lease, then he or she must cure any missed payments or convince the bankruptcy court that curing the payments in the future is possible, which sometimes isn’t possible in chapter 7 cases. The benefit to the debtor, though, is that the lease is then removed from the bankruptcy estate. The debtor cannot rescind an assumption agreement after it is signed.

In chapter 13, the trustee can assume leases on behalf of the bankruptcy estate. This can often benefit all parties. For example, if a debtor is running an unincorporated business and is leasing space for work, then if the trustee assumes the lease the debtor can continue working in that space and the creditors will be paid. This works a lot better than forcing the debtor to look for a new location and losing money all the while. Trustees can also reject leases, which means the debtor will have to return whatever property is being leased to the lessor.

You can read more about assuming a lease for a vehicle here.

Reaffirmation:

When a debtor reaffirms an agreement with a creditor, he or she is promising to continue making payments on the debt as though the bankruptcy case hadn’t been filed. This takes the debt out of the bankruptcy estate, but the benefit to the debtor might be freeing up money for another exemption. The big caveat is that the debtor is liable for the debt after the discharge, so if a default occurs, the creditor will be able to pursue the debtor for the deficiency.

Unlike assumption agreements, debtors have up to 60 days to rescind a reaffirmation agreement with the added benefit that the creditor is obligated to return any payments made after the agreement was struck. Obviously, the debtor will probably lose any property securing the debt, like a car.

You can read more about the requirements for reaffirming an agreement here.

Deciding to assume a lease or reaffirm a debt is not one that should be made lightly, and consulting with an experienced New York bankruptcy lawyer can help you determine whether either option is appropriate and if so which one.

For answers to more questions about assumption, reaffirmation, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

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