Ford takes the position you have to reaffirm. Toyota, HSBC, do not. WFS used to say retain and pay but now they are Wachovia and they seem to want a reaffirmation agreement. I have generally not advised explicit assumption of car leases in Chapter 7, with no ill effects that I know of. On a newly filed case, I have a very brisk letter from a lawyer for Ford Motor Credit, saying sign here or we will repossess right after 60 days are up. I know that under the old GMAC “Smart-lease” — under which client basically rents vehicle for three years then enters into agreement to purchase car — GMAC would not agree to ultimate sale of vehicle unless client had reaffirmed “Smart-lease” in bankruptcy. Although I think there is some case law that the Smartbuy lease is really a sale, you may want to simply assume the lease. If you do not also reaffirm the debt, any personal liability should be discharged. And, as Dennis points out, if a creditor demands reaff but the court refuses to approve, there is a growing body of case law that debtor can keep and pay. Unfortunately, when we have had a couple of clients who insisted on reaffirmation, which they did themselves, the court approved it despite the signals we tried to convey that we’d prefer disapproval. You could have several scenarios. One, he gets behind on the payments and the vehicle get’s repoed. Two, he makes all of the payments and decides not to keep the vehicle in which case that is usually the end of it. I think my concern comes down to a simple question: does a Chapter 7 debtor who explicitly assumes a car lease and continues to perform have greater exposure later on for claims under the lease later on than a debtor who does not assume but otherwise continues to perform in identical fashion? I seem to recall a case that discussed this, holding assumption is not a reaffirmation, but don’t have it handy. It is hard to see how it could be a reaffirmation, because almost none of the requirements for reaffirmation would be met. With respect to Ford, they are stupid. This is basic loss mitigation. Do you want to lose perhaps nothing, or a significant amount. It makese sense to repo the car if the payment’s missed but not because the reaff isn’t signed. Most my clients have little or no equity. If the lender repoes the car, then sells it an auction, a huge loss is created. What can the lender possibly lose if the client is paying like clockwork? I CAN see repoing with a payment 30 days late or no proof of insurance, but what’s the point of doing it if the client’s paying on time? My attitude is: fine, you want it, get it. Client will just get another car. I go over all this with clients and they almost always agree with this approach. It’s interesting to me that Nissan (there was a post a few days ago) seems to be quite amenable to retain and pay. I’m not really sure Ford’s policy is the result of knowing something no one else does.
Related posts:
Thanks for good news!
great post as usual!