In bankruptcy, auto leases do not need to be reaffirmed

A few years ago, the bankruptcy code was amended to “encourage” debtors to reaffirm thier auto and truck loans; if no reaffirmation agreement was signed within a specified time after filing the bankruptcy case, lenders got back their repossession rights without having to go to court and ask permission.

But what happens if you lease your vehicle, instead of owning it? A recent string of court decisions indicates that leases do not have to be reaffirmed, as there is no real meaning to the idea of ‘reaffirming” under the bankruptcy code.

Leases, instead, are either assumed or rejected in bankruptcy. And at least for Massachusetts bankruptcy debtors, there is good case law that suggests that even assuming a car lease does not re-create a personal liablility to pay following the bankruptcy.

The bottom line for drivers of leased vehicles in Massachusetts: if you want to keep your leased vehicle after filing, assume the lease and keep making payments. But do not be coerced in signing a reaffirmation. And if you want to turn the vehicle in, instead, you can do that too.

 

By Doug Beaton

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