Post bankruptcy debt – leased vehicle

Sent: November-19-14 9:41 AM

Leased vehicle agreement – post bankruptcy debt

Good morning Colleen,

I have a question about my leased vehicle and post bankruptcy debt.  I declared bankruptcy with you a couple of months ago and I know you said I had to make my mind up about my vehicle. I have decided now that I cannot afford my lease payments. However, when I talked to Subaru regarding the seizure of my vehicle they said I was going to be personally responsible and would not acknowledge my personal bankruptcy.
After reviewing the lease agreement I note that on the first page of the document it is marked on the lease that the vehicle is for Business use for my limited company. Does this change the options for including this lease in my bankruptcy? Can I include this payment in my personal bankruptcy?

Thanks for looking at this.

Colleen’s Response:

Hello

I get this question quite often about lease vehicles post bankruptcy.  In this case it does not matter use of the vehicle (business or otherwise), the fact that it was in your name or you guaranteed the debt it is what matters.

The personal bankruptcy includes all debt anywhere in the world at the date of assignment. If you were in default under the terms of the lease, then it is included and that creditor cannot proceed against you outside of the bankruptcy.  Even if you were not in default, the debt itself is included even if you do not list the debt on the statement of affairs which is the document you signed that listed all of your debts.  What matters is what you did with respect to the leased vehicle post bankruptcy.

If however, you continued to use the vehicle, or indeed made a payment towards the lease and then sometime subsequent to the date of assignment you decided or were not able to make any more payments, then the “default” under the lease occurred AFTER the date of assignment into bankruptcy and thus any shortfall would be a post-bankruptcy debt. This action is considered “re-acknowledgement of the debt”. If this is the case, then the creditor can seize the vehicle under the lease, sell it, and come after you for the remaining lease payments plus the buy-out requirements less whatever value they get from selling the car at auction (which may be significantly less than fair market value).

So, the question becomes, when did you default on the lease payments? If it was after assignment into bankruptcy then indeed you may be held personally for obligation under the lease as it would be considered a post bankruptcy debt.   However, even if there were a couple of payments made under the lease, you may still have an argument that any shortfall should be included in the bankruptcy IF the payments were being withdrawn automatically from your bank account for instance.   You can argue that you did not intend to make these payments and thus they should not have been made but rather was a simple mix-up at the bank. You can argue that these payments were continued on the banks behalf only and it was not an attempt on your part to “re-acknowledge” the debt. Of course, the further away from the date of assignment you get, the weaker your argument becomes if you continued to make the lease payments.

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