The 9th Circuit Court of Appeals recently issued a favorable ruling in a bankruptcy case, Melissa C. Mather Bobka v. Toyota Motor Credit Corp., No. 18-55688. AFSA submitted an amicus brief in the case, arguing that if the case was decided in favor of the plaintiff, consumers would face difficulties in achieving a true fresh start after a Chapter 7 bankruptcy. The 9th Circuit affirmed the bankruptcy court and district court’s ruling in favor of Toyota.

When Bobka filed for Chapter 7 bankruptcy, she wanted to keep her leased Toyota Rav4. She called Toyota and was told that to keep the vehicle, she would need to assume the lease as permitted by 11 U.S.C. § 365(p).  She did not provide her assumption request in writing.  After Toyota sent her an assumption agreement, she signed and returned it after 30 days—then stopped making payments.  After she received her bankruptcy discharge, Bobka returned the vehicle, but asserted that she was not responsible for the overdue balance on the lease.  Bobka claimed her obligations under the lease did not survive the bankruptcy discharge because the assumption agreement had not been reaffirmed under 11 U.S.C. 524(c).  She also claimed that her failure to comply with section 365(p)’s writing and timing requirements invalidated the assumption.  When Toyota sought to collect, Bobka sued, claiming that such post-discharge collection efforts violated the discharge injunction

Both the bankruptcy court and the district court ruled in Toyota’s favor, holding that lease assumptions survive discharge even if they are not reaffirmed under section 524(c).  The Ninth Circuit affirmed, reasoning that longstanding canons of statutory construction and the overall structure of the Bankruptcy Code supported the conclusion that a lease assumption need not be reaffirmed in order to survive discharge.  The policy underlying section 365(p) also supported allowing consumers to assume car leases without judicial approval, because giving debtors the ability to retain leased vehicles during and after bankruptcy enables them to continue to work.  The panel also held that Bobka and Toyota mutually waived section 365(p)’s writing and timing requirements and such procedural defects did not excuse Bobka from the obligations of her lease assumption agreement. Toyota Motor Credit Corporation was represented by Sheppard, Mullin, Richter & Hampton LLP.