The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) added a new provision regarding personal property leases, §365(p), which provides:
(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under §362(a) is automatically terminated.
(2) (A) If the debtor in a case under chapter 7 is an individual, the debtor may notify the creditor in writing that the debtor desires to assume the lease. Upon being so notified, the creditor may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.
(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor and not by the estate.
(C) The stay under §362 and the injunction under §524(a)(2) shall not be violated by notification of the debtor and negotiation of cure under this subsection.
(3) In a case under chapter 11 in which the debtor is an individual and in a case under chapter 13, if the debtor is the lessee with respect to personal property and the lease is not assumed in the plan confirmed by the court, the lease is deemed rejected as of the conclusion of the hearing on confirmation. If the lease is rejected, the stay under §362 and any stay under §1301 is automatically terminated with respect to the property subject to the lease.
Automobile leases are the most common type of personal property leases in consumer bankruptcy cases. There is confusion both among the consumer bankruptcy bar as well as among automobile lessors regarding what is required for a debtor to assume a personal property lease post-BAPCPA.
Section 365(p) was added to clarify that the automatic stay terminates upon rejection of a personal property lease and in response to the pre-BAPCPA cases that held that chapter 7 debtors could not assume a lease. See In re Rogers, 359 B.R. 591, 593 (Bankr. D. S.C. 2007).
What Is the Required Form for Intent to Assume under §365(p)(2)(A)?
Other than the requirement that the communication be in writing, the statute does not require any particular form for the notice. Unlike reaffirmation agreements, the Code does not provide detail on what form a notice of assumption should take. The practice of the author is to prepare a notice of intent to assume pursuant to §365(p), using the case caption in that specific debtors case. The notice states that the debtor is, pursuant to 11 U.S.C. §365(p), to assume the debtor’s personal property lease with the lessor. In addition, the notice identifies the vehicle with specificity and includes the lessor’s account number. It is also the practice of the author to attach a certificate of service to the notice and file it with the bankruptcy court. However, neither the Code, nor the Federal Rules of Bankruptcy Procedure, requires filing such a notice.
What Response May a Lessor Make to a Notice under §365(p)?
The statute does not provide guidance as to how the lessor is required to respond. Curiously, the statute does specify that the lessor “may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.” See §362(p)(2)(A).
Beyond that, the statute is unclear as to exactly how assumption occurs. In response to the initial notice pursuant to §365(p)(2)(A), if the debtor and lessor don’t reach an agreement, the debtor can then provide a second notice pursuant to §365(p)(2)(B) and the lease is then assumed.
In the event that the lessor is not willing to permit assumption and the debtor is in default under the lease, the lessor can exercise its remedies under applicable non-bankruptcy state law. Finally, §365(p)(1) provides that if the trustee does not timely assume the lease, “the leased property is no longer property of the estate and the stay under §362(a) is automatically terminated.”
There Is No Requirement for Bankruptcy Court Approval or Involvement
A number of bankruptcy courts have held that bankruptcy courts should not get involved in the assumption of a personal property lease under §365(p). See, e.g., In re Rogers, 359 B.R. 591, 593 (Bankr. D. S.C. 2007); In re Gaylor, 379 B.R. 413, 414 (Bank. D. Conn. 2007); In re Finch, 2006 WL 3900111 (Bankr. D. Colo. Oct. 2, 2006) (No. 06-14016-SBD); In re Walker, 2007 WL 1297112 (Bankr. M.D.N.C. Apr. 27, 2007) (No. 06-11514C-7G); In re Kanan, No. 07-32270 (N.D. Ohio Jun. 26, 2007); In re English, No. 07-55986 (E.D. Mich. Oct. 30, 2008); In re Jeffery, No. 08-23634 (Bankr. N.D. Ind. 2009).
Assumption Pursuant to §365(p)(2) Does Not Excuse Compliance with Reaffirmation Requirements under the Code
Bankruptcy courts also reasoned that §365(p) is independent of §524(c) and that §365(p) does not result in a waiver of discharge, and that to reaffirm the debtor’s obligations under the lease, a reaffirmation agreement is still necessary. In re Walker, 2007 WL 1297112 (Bankr. M.D.N.C. Apr. 27, 2007) (No. 06-11514C-7G); In re Finch, 2006 WL 3900111 (Bankr. D. Colo. Oct. 2, 2006) (No. 06-14016); In re Gaylor, 379 B.R. 413, 414 (Bank. D. Conn. 2007); In re Creighton, 2007 WL 541622 (Bankr. D. Mass. Feb. 16, 2007) (No. 06-13333); In re Finch, 2006 WL 3900111, (Bankr. D. Colo. Oct. 2, 2006) (No. 06-14016); In re Kanan, No. 07-32270 (N.D. Ohio Jun. 26, 2007).