Bankruptcy Law/Bankruptcy/Credit Report
QUESTION: Hello Lee,
My bankruptcy was discharged in July 2013. I was leasing a car through Toyota and when I filed the bankruptcy they sent me a notice to try and get me to reaffirm but I never reaffirmed the lease and never signed anything. They supposedly closed my account because I couldn't make payments via the website any longer and they stopped sending me bills. During the bankruptcy period, I made 2 car payments by sending them a check, but have decided to not keep the car and will be giving it back to Toyota. However, this week, they sent me a bill for the last 2 months payments, but more importantly, I went to a dealership yesterday and when they ran my credit they told me that the lease with Toyota is appearing as reaffirmed on 2 of the credit bureaus and on 1 of the bureaus it's appearing as if it wasn't even part of the bankruptcy and showing my recent missed payments. If I didn't sign a reaffirm agreement then the debt should be discharged. How does this happen and can this be fixed? The lawyer that handled my bankruptcy is currently away so I wanted to get an idea before he comes back. Also, when Toyota takes the car back will it appear as a repossession on my credit report? Something doesn't seem right, why would it be listed as Reaffirm on my credit report if I didn't sign anything?
ANSWER: Hi Gavin -- you need to know that credit reports are not all that reliable as to what happened in a bankruptcy case and you have provided "exhibit A" to that very statement.
First off, leases are never "reaffirmed" in bankruptcy -- that is a legal term used to agree to pay a non-lease debt (like a car LOAN) as if there was no bankruptcy and if there is a repo after the bankruptcy, the lender can sue for a deficiency without any problems.
Leases, on the other hand, are either assumed or rejected. To assume a lease, there isn't much to it, but you DO need to sign something saying "I hereby assume this lease". Making payments isn't enough.
Since you didn't do that, the leasing co. did what they all do, stopped sending monthly billings as they think doing so violates the bankruptcy automatic stay; it probably would but its one of those "who cares" type of situations where no one complains about getting bills on debts they're going to be or are paying.
In your situation, regardless of what the credit report says, if you didn't sign something saying I hereby assume this lease, then this lease is not assumed and your legal obligations on it were discharged; so give 'em the car back with your best wishes.
Also -- leases are generally not the best way to get car financing. If you're looking at financing another ride, the impaired-credit loan business is extremely competitive; do NOT sit still for the first 23% interest offer -- shop; and tell the dealer that explains to you why you'll "have" to py 23% interest that you can do better at another dealership and I'll see you later. The rate will drop before your very eyes.
Surrender of your leased vehicle will very likely show up as a repo; explain that you paid lease payments during the bankruptcy but did not assume the lease and decided to turn the vehicle in. Because you didn't comply with the lease terms, it is properly described as a "repo" rather than "end of lease turn-in". Since you already have the bankruptcy "ding" on your credit, this won't matter -- but it needs to be explained it wasn't a forced repo; it was an economic decision.
In Arizona, credit unions are getting more active in financing after-bankruptcy cases; one I know just financed a new VW for a guy 1 yr out of bankruptcy for a single digit rate (he was turned down by several instutions and offered 23% to start with).
Good luck. I think you're totally safe based on what you've told me.
---------- FOLLOW-UP ----------
QUESTION: Thank you, Lee. One last question...I already told Toyota to come pick up the car and they said they will treat it as a "voluntary surrender". My question is, can I/will I still be held responsible for the deficiency of the balance after the car is sold at auction?
As I read your facts in the original question, Toyota was scheduled as a creditor with a car lease, the vehicle lease was never assumed (you never signed anything assuming the lease after the filing of bankruptcy) thus when it's turned in, no you should not have any deficiency balance liability. It strikes me as totally discharged.