Bobka v. Toyota Motor Credit Corporation

Lease assumption is binding even if the debtor doesn’t follow the procedural requirements of Section 365(p).

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Case Type:
Case Status:
No. 18-55688 (9th Circuit, Aug 03,2020) Published
The Ninth Circuit held that an individual Chapter 7 debtor can assume an automobile lease under Section 365(p) without reaffirming the debt, and further held that the lease assumption is binding on the debtor even if the debtor has not complied with the procedural steps required by Section 365(p).
Procedural context:
The Ninth Circuit affirmed the district court’s affirmance of the bankruptcy court’s ruling that a creditor’s post-discharge collection efforts on a vehicle lease did not violate the discharge injunction in a Chapter 7 case, where the debtor had assumed the lease but then stopped making payments.
In a Circuit level case of first impression, the decision observed that the bankruptcy courts are divided on whether an assumption under Section 365(p) also requires reaffirmation under Section 524(c). In her petition, the debtor stated an intention to keep the leased car and an intention to reaffirm the debt. She called the lessor, and the lessor told her that she must assume the lease, and sent her an assumption agreement. The debtor signed the assumption agreement the day before receiving her discharge (which was about three months later). By that time, the Debtor had already stopped paying on the lease. She later surrendered the car to the lessor but refused to pay what she owed on the lease. The debtor filed a motion in bankruptcy court seeking fees and more than $50,000 in sanctions for violating the discharge injunction. The debtor contended that the lease-assumption agreement was not enforceable because she had not reaffirmed the debt under Section 524(c). The dispute turned on the interpretation of Section 365(p), added in 2005. Until 2005, only a chapter 7 trustee could assume a personal property lease. Section 365(p) allows a debtor to assume a lease of personal property by requesting assumption in writing from the lessor, and if there is no cure issue, notifying the lessor that the lease is assumed. In this case, the debtor did not follow Section 365(p) in two ways: the assumption request was not in writing, and she did not respond to the lessor within 30 days of receiving the assumption agreement. The court found that this failure to follow section 365(p)’s requirements did not excuse the debtor from the lease assumption. The debtor also contended that reaffirmation of the debt was required under Section 524(c), but the court concluded that the more specific provisions in Section 365(p) govern over the more general ones in Section 524(c).
Jacqueline H. Nguyen and Eric D. Miller, Circuit Judges, and Eric N. Vitaliano,* District Judge.

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