Recently there was a case where several debtors asked a Bankruptcy Court to approve a lease agreement as if they were re-affirmation agreements. From a procedural standpoint re-affirmation agreements require Bankruptcy Court intervention and lease assumptions do not, and therefore, the Courts denied this process. In the past, several Bankruptcy Courts allowed this process, but in the recent case of In Re Perlman, Judge John K. Olson of the Southern District of Florida argues against the idea of seeking Court approval of lease agreements. Judge Olson believes that the process of seeking Court approval of Lease Agreements is a waste of the Court’s time and resources and the Clerk’s office’s time and resources.
Let’s start with lease assumptions. Under the Bankruptcy Code 365(p)(2), the debtor can offer to assume a lease. The lessor must decide whether it wants to enter into the lease assumption agreement. If the lessor does not want to continue in the lease, it can do nothing and the lease will be deemed rejected and any debt associated with the lease will be discharged. If the lessor decides that it would agree with the debtor assuming the lease, it will contact the debtor and terms will be negotiated.
Under 11 U.S.C. 365(p)(2) (A), the lessor can contact the debtor to discuss terms of the lease assumption. Once the parties agree to the terms a writing is necessary to memorialize the deal. It is rather straightforward and simple. There are no time frames outlined by the Code. Unlike a re-affirmation agreement, the bankruptcy code does not require judicial review of the agreement or approval.
A re-affirmation agreement is quite different. These agreements are governed by 11 U.S.C. 524. When a Debtor is represented by an Attorney in a bankruptcy proceeding, there must be proper disclosures before the agreement is presumed to be valid, the re-affirmation agreement must be signed and filed with the Bankruptcy Court before the Discharge is granted. At times, the Bankruptcy Court must hold a hearing to determine if the requirements of 11 U.S.C. 524 are being complied with.
The point Bankruptcy Judge Olson was trying to make was that each type of agreement has it’s own procedure and requires certain actions by the debtor and counsel. I believe that the Judge was attempting to tell lessors and debtors that the practice of attempting to get judicial approval of a lease as a tactical advantage in a negotiation or for whatever reason will only result in the clerk’s office wasting time and the Court wasting time.
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Last modified: April 30, 2012