CAN I KEEP MY LEASED VEHICLE? PART 6
(IS THE AGREEMENT ACTUALLY A LEASE?)
Before I can tell you what your rights are under your agreement that is called a lease, I must first determine if your agreement is, in fact, a lease. A lease, which is also called an executory contract, has a definition under 11 U.S.C. Section 365 of the United States Bankruptcy Code. This definition is not very clear and, for this reason, there has been a lot of litigation over the years as to whether an agreement that may be called a lease is, in fact, a lease. Whether a document is a lease-executory contract or not can dramatically affect the creditor’s rights and what will have to be paid to be able to keep the property. This issue has often resulted in fierce litigation as the result can cost the loser a lot of money.
Generally, a lease or executory contract is an agreement that will require both sides to do something. A mortgage is not a lease or executory contract because the lender does not have any further duties under the mortgage but to cancel or satisfy the mortgage when the indebtedness is paid in full.
If, at the end of the agreement, there are still important rights for both sides to perform, then the document is a lease or executory contract. An example of a lease would be an agreement where, at the end of the payments, the borrower would have the right to buy the vehicle at it fair market value at that time. The amount can even be agreed to at the beginning of the agreement, but, it must be a reasonable amount.
Sometimes, a lender will try to call something a lease and the buyout is only some small amount or a small portion of the value of the vehicle’s expected value at the time all payments that are called for under the agreement would be completed.
If that is occurring, then the agreement may be determined to be a disguised security or purchase agreement. If it is determined that the agreement is not a lease, then the agreement may be changed or rewritten by a Bankruptcy Court in many situations. This may be a valuable right to a debtor if the interest rate can be reduced and payments stretched out over a longer period than originally agreed to between the debtor and lender.
When you meet with an experienced bankruptcy attorney, you must bring your agreement with you to the meeting. Make sure that you will be meeting with an attorney and not a paralegal when this issue is being reviewed. A paralegal is not qualified to advise you if an agreement is a lease or executory contract or a security agreement.
Call my office at 843-571-4042 to schedule an appointment to meet with me, Nathan Davis, to discuss this issue and other questions so that you can make the proper decision for you regarding your financial situation. I have been practicing in Charleston, South Carolina for many years in this area of the law. I practice Bankruptcy Law because I find it rewarding to help you.