Cars are one of the two most common assets New Yorkers bring into bankruptcy, the other being a house. Most debtors’ cars also don’t have that much value, even though they still have a loan securing them. In most Chapter 7 cases, petitioners have three options for handling their vehicles: surrender it, redeem it at market value, or reaffirm the loan, which is an agreement that excludes the auto loan from the bankruptcy case.
Not everyone owns their cars, though, and instead they’re leasing them, which means the actual owner rents the vehicle out for a few years and then resells it on the used car market. The benefit to the people leasing vehicles is that the monthly payments are less than if they bought them normally, and newer vehicles require less maintenance. Leasing is an option businesses tend to be more interested, but individuals do it too. The question is, how does a debtor deal with a leased vehicle in bankruptcy?
First of all, leases are treated differently by the bankruptcy code than secured debts (like purchased vehicles) and even unsecured debts (credit cards). They’re even listed in a different schedule in the petition itself (“schedule G”).
Similar to reaffirmation and surrendering, the petitioner has two options: assume or reject the lease. By rejecting the lease, the vehicle goes back to the owner, and the debt is discharged, if it’s a Chapter 7 filing. This is the default disposition of the vehicle; it’s considered “rejected” unless the petitioner decides to assume it. Otherwise, the petitioner must sign an assumption agreement with the owner and file it with the bankruptcy court. This must occur within 60 days of the first meeting of the creditors, which is one month after the initial filing. The benefit of assuming the lease is that unlike a reaffirmation agreement, the owner cannot sue the lessee should the lessee default on the lease. The owner can repossess the vehicle, however.
Sometimes the vehicle owner also demands the lessee sign a reaffirmation agreement with the assumption agreement, which must be approved by the court. This might involve more risk to the lessee, and it prevents the debt from being discharged as it takes it out of the bankruptcy estate. It’s details like these that make it important to hire an experienced New York bankruptcy attorney.
For more questions about leases, vehicles, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.
