The Truth About Lease Reaffirmation

By Kurt O'Keefe, Attorney at Law


Leases are their own animal under the bankruptcy code.

They are neither secured debt, nor unsecured debt.

They get their very own schedule, schedule G.

And the Bankruptcy Code provides that leases can be assumed or rejected.

Rejection, as you might have guessed, means nope, not interested, take your leased property back, don’t want it anymore.

The Chapter 7 discharge removes your personal liability for that lease, end of story.

How do you reject a lease?

Happens automatically if you do not assume it.

Now, maybe you rent where you live, or your car, and you want to keep it.

So, you assume the lease.

Sign an assumption, the creditor signs, you file it, and, the lease is assumed.

But that is NOT reaffirmation.

The bankruptcy code, 11 USC 524, sets out what has to be done to re-impose personal liability on a debtor for a pre-petition debt.

Does assuming a lease make you personally liable for that debt?

Can the lessor, the person or company on the other side of the lease, sue you for money if you default later?

Or do you also have to reaffirm a lease in order to be personally liable?

As with reaffirmations, lease assumptions must be entered into BEFORE the discharge.

This gives you at least 60 days after the 341 hearing, or creditors’ meeting, which is about a month after the case is filed.

Unlike reaffirmation agreements, a lease assumption does NOT have to be approved by the Court.

Some courts punted, allowing lease assumptions without addressing the issue of the debtor’s personal liability.

In In Re: Creighton, 2007 WL 541622 (Bankr.D.Mass.2007), the issue was squarely before the court, as the court had approved the lease assumption, with the notice that a reaffirmation agreement would be necessary for imposition of personal liability on the debtor.

So the creditor moved for reconsideration of that requirement, partly on the basis that the lease assumption included language imposing personal liability on the debtor.

That court, and most others, concluded that nothing in the 2005 Bankruptcy amendments changed the strict requirements for re-imposing personal liability on a debtor.

This holding was followed in the recent case of In re David W. EADER, 426 B.R. 164, (2010)

So, at least in most bankruptcy courts, assuming a lease does NOT make you personally liable again on that contract.