5 Ways ‘Assumption’ Differs from ‘Reaffirmation’ in Las Vegas Bankruptcy

The bankruptcy code allows Las Vegas debtors to renew some contracts and not others. It also allows the trustee to do the same in Chapter 13 repayment plans. The terms used are “assumption” and “reaffirmation.” They appear to create the same result—the debtor paying on pre-bankruptcy debts—but they differ in a few important ways.

(1) Assumption agreements apply only to what the law calls “executory contracts,” which are contracts in which both parties have not completely performed their sides of the agreement. The most common examples are leased vehicles and leased retail space. In these situations, the lessor continues to provide the vehicle or space so long as the lessee pays for it. It’s a continuous agreement until the term expires. By contrast, reaffirmation agreements apply to any other kind of debt. Debtors can reaffirm car loans, mortgages, credit card (but why they’d want to is a separate discussion).

(2) Reaffirmation agreements and assumption agreements both remove debts from the bankruptcy case, but assumption agreements require the lessee to cure any missed payments or at least convince the bankruptcy court that he or she will do so.

(3) The rules differ between the two types of agreements. Debtors who reaffirm car loans have 60 days to rescind the agreement if they are dissatisfied or believe they signed them in haste. If they do rescind the agreement they must surrender the vehicles to their creditors, but the creditors must refund to the debtors any payments they made after the reaffirmation agreements were signed. Assumption agreements do not come with any such privileges. Consequently, debtors are encouraged to ensure that assuming the leases is what they want.

(4) Bankruptcy trustees in Chapter 13 are able to assume leases on behalf of debtors. They obviously cannot reaffirm debts as debtors can do that for themselves. Commonly, assumed leases are for retail spaces where debtors businesses operate. The idea is that assuming the lease saves the parties time and money finding the business a new location, especially because it can generate revenue where it is for the trustee and the creditors.

(5) Bankruptcy trustees also have the power to reject a lease. If they do, debtors must vacate the premises or returned any property to the lessors. Any unpaid debts are considered unsecured and subject to discharge.

The doctrines of assumption and reaffirmation largely do the same thing but in reality they work differently, and knowing those differences is why hiring an experienced Las Vegas bankruptcy lawyer is so important.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.