There is a distinction in the bankruptcy code between a Lease Assumption and a Reaffirmation Agreement. While a Lease Assumption letter is typically required to assume a lease on personal property including automobiles, some creditors may require that you execute a Reaffirmation Agreement in order to continue your lease. Your attorney should advise you that the firm does not recommend signing a reaffirmation agreement on a lease as there is no such creature in the Bankruptcy Code. Below is the language in the disclosure I provide to all my clients when they are financing or leasing a vehicle.
I understand that by executing this reaffirmation agreement (hereinafter the “agreement”), I am agreeing to be held liable under the terms of the original financing terms of the contract and/or lease agreement, including but not limited to the obligation to make payment of unpaid principal, interest, fees and other costs associated with the reaffirmed/assumed debt for automobiles.
I understand that by executing this agreement, I may be required to appear before the court to testify as to my ability and desire to continue making payments on the reaffirmed debt. I understand that this agreement may not be approved by the court. I understand that I am not required by law enter into this agreement. I understand that I may rescind (cancel) the agreement at any time before the bankruptcy court enters my discharge.
I understand that if I enter into this agreement and I default on the reaffirmed debt after the bankruptcy case is completed, the creditor may be able to repossess the property and sue me for any deficiency. I understand that if I do not enter into this agreement, my property may be repossessed and my debt may be discharged in bankruptcy.
I understand that some creditors will allow me to retain possession of my property even if I do not enter into the agreement as long as I continue to make payments. I understand that if I do not enter into the agreement and I maintain the collateral and continue to make payments, the lender may not report post-bankruptcy payments to the credit reporting agencies. I understand that if I do not enter into this agreement, I may not receive account statements and I may not be able to make automatic payments on the account.
Lease Assumptions Disguised as Reaffirmation Agreements – I understand that there is a distinction in the bankruptcy code between a Lease Assumption and a Reaffirmation Agreement. I understand that while a Lease Assumption letter is typically required to assume a lease on personal property including automobiles, some creditors may require me to execute a Reaffirmation Agreement in order to continue my lease. My attorney has advised me that the firm does not recommend signing a reaffirmation agreement on a lease.
I am entering into this agreement voluntarily. I am fully informed of my rights and responsibilities in this matter and I have been advised of the legal effect and consequences of defaulting under this agreement.
I have received a copy of this disclosure.”
Attorneys have different opinions on whether you should sign a reaffirmation for a leased vehicles. Discuss it in depth with your attorney so you are informed. Even after assuming a lease or reaffirming a car banks and financing companies do not report payment timely or not to the credit bureaus. So if you are hoping to give your credit score a boost for making timely payments, think again.