Must a chapter 7 debtor who assumes a personal property lease under Section 365(p) also undergo the reaffirmation process required by Section 524(c)?
Lower courts are “deeply divided” on the answer, according to a May 11 opinion by District Judge Matthew F. Leitman of Detroit.
A woman in chapter 7 filed a statement of intention to assume a car lease. She notified the lessor, who agreed to the assumption so long as the debtor signed a stipulation. The debtor signed the stipulation, and it was filed with the court.
Less than a month later, the debtor had a change of heart and filed a document with the court purporting to rescind the lease assumption. Meanwhile, the bankruptcy court had granted a discharge and closed the case.
The debtor reopened the case and filed a motion contending that the lease assumption was invalid because reaffirmation of the debt had not been approved under Section 524(c). The bankruptcy judge upheld the validity of the lease assumption.
Judge Leitman said that the question was a “difficult one.” He cited decisions by courts that require reaffirmation before lease assumption is valid. Those courts, he said, often cite the “Bankruptcy Code’s policy favoring debtor protection.” They also believe that “plain language” requires use of both statutes because Section 365(p)(2) uses the word “assumption,” which is not self-executing.
He then cited decisions that uphold personal property lease assumption without the procedures entailed by Section 524(c). Those courts noted that Section 365(p) says nothing about reaffirmation, and that Congress would have said so if reaffirmation were also required.
Judge Leitman upheld the bankruptcy judge and came down on the side of courts that do not require parallel assumption and reaffirmation.