How to Treat “Rent to Own” Accounts in a Chapter 13 Bankruptcy

29 Mar How to Treat “Rent to Own” Accounts in a Chapter 13 Bankruptcy

If you are filing a chapter 13 bankruptcy case and have purchased household goods under a “rent to own” contract, you may wonder how to treat this debt in your chapter 13 repayment plan. Because rent to own contracts typically involve total rental payments amounting to many times the actual value of the items “purchased,” rent to own accounts are a bad deal for the purchaser, and a ridiculously good deal for the seller. This means it might be a good idea to simply reject the rent to own account in your chapter 13 plan, and let the seller repossess the items. Any deficiency will simply become an unsecured debt subject to discharge, the same as all your other unsecured debts. Then, you can purchase a different sofa, washing machine, or whatever the surrendered items consisted of, for cash.

However, if you are committed to keeping your rent to own items at all costs, you do have a fairly good option: treat the rent to own account as a secured debt, “cram down” the debt to the items’ fair market value, and pay this reduced amount through your chapter 13 plan. This can be done by describing the rent to own account as a secured debt, amounting to a disguised purchase money loan, in your chapter 13 plan. The bankruptcy law states that upon confirmation by the court of a chapter 13 plan, creditors and other parties are legally bound by the plan’s provisions. If the rent to own seller fails to object to the plan, it is bound by the plan, and it cannot seek repossession of the items.

If a chapter 13 plan proposing the above teatment of a rent to own account is confirmed, all you need to do to retain the items and obtain a discharge of the rent to own account is to complete your payments to the trustee pursuant to your plan.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
2 Comments
  • Mike Dallos
    Posted at 16:11h, 17 May

    Thank you for the advice.
    I’m filing a Chapter 13 in New York.

    Be well………..

    Mike Dallos