Opinion
Case No. 95-10776-AM
September 14, 1995
Robert Ross Weed, Esquire, Falls Church, VA, OF Counsel for debtors
Joseph F. Manson, III, Fairfax, VA, Of counsel for General Electric Capital Auto Lease, Inc.,
MEMORANDUM OPINION
This matter is before the court on the objection filed on August 3, 1995, by General Electric Capital Auto Lease, Inc. ("G.E. Capital") to confirmation of the debtor's amended chapter 13 plan dated July 6, 1995. Argument was heard on August 22, 1995, at which time the court took the matter under advisement.
The debtors filed a voluntary petition under chapter 13 of the Bankruptcy Code in this court on February 27, 1995. On their schedules, they originally listed G.E. Capital as a undersecured creditor holding a $19,656.00 claim secured by a 1994 Isuzu Rodeo automobile worth $14,750.00. G.E. Capital filed a timely proof of claim asserting a secured claim in the amount of $19,829.57 arising under "executory contract for lease of automobile." The terms of the agreement, which is attached to the proof of claim, require payments of $369.46 per month for 60 months and further require that the vehicle be returned at the end of the 60 months (March 9, 1999) unless the lessees (here the debtors) exercise an option to purchase the vehicle for $250.00 plus the "Estimated End of Term Wholesale Value of Vehicle", which is stated to be $8,039.46. The agreement further states in bold (albeit not very large) print, "I acknowledge that this is a true lease and I will have absolutely no equity or other ownership rights in the Vehicle or its replacement parts unless I exercise the purchase option."
Although the debtors have never amended their schedules, they have filed an amended plan which treats the G.E. Capital claim as one arising under an executory contract. Specifically, Section B-10 of the plan provides:
Gecal [G.E. Capital] shall be assumed as an executory contract. Gecal shall be paid through the Trustee at the lease rate of $364.00 per month for 60 months. The arrearage of $2,376 shall be paid in full over the 60 months to cure the default.
The plan is to be funded by payments from the debtors to the standing chapter 13 trustee of $490.00 per month for 12 months, $600.00 per month for 12 months, and $800.00 per month for 36 months. The first payment under the plan is due April 14, 1995. The dividend to unsecured creditors is 24%.
Under § 1322(b)(7) of the Bankruptcy Code, a chapter 13 plan may, "subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section." Section 365(b) in turn provides:
(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee —
(A) cures, or provides adequate assurance that the trustee will promptly cure, such default;
(B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease for any actual pecuniary loss to such party resulting from such default; and
(C) provides adequate assurance of future performance under such contract or lease.
Since there is no dispute the lease is currently in default, the issue is whether the provisions of the proposed plan (1) cures, or provide adequate assurance of a prompt cure, of the default and (2) provides adequate assurance of future performance under the lease. The lessor, in particular, objects that payment of the arrearage over 60 months does not represent a "prompt" cure, especially since the lease term expires approximately a year prior to end of the 60 month plan term.
Section 365 provides no hint as to what the outside limits of a "prompt" cure would be, and Congress evidently intended to provide bankruptcy courts with some flexibility to set a time limit based on the specific facts of a particular case. In re: General Motors Acceptance Corp. v. Lawrence, 11 B.R. 44, 45 (Bankr.N.D.Ga. 1981). Nevertheless, there is no indication that Congress did not intend "promptly" to have its ordinary dictionary meaning of "in a prompt manner: at once: immediately, quickly." Webster's 3rd New Int'l Dictionary, p. 1816 (1993). Section 108(b) of the Bankruptcy Code appears to express a Congressional intent that cure would ordinarily occur within 60 days:
* * * if applicable nonbankruptcy law * * * or an agreement fixes a period within which the debtor * * * may * * * cure a default, or perform any similar act, and such period has not expired before the date of the filing of the petition, the trustee may only * * * cure or perform, as the case may be, before the later of —
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 60 days after the order for relief.
Although the language of Section 108 could be read as limiting any right to cure to whatever right is provided in the agreement, merely extended 60 days, the better view is that "the court will be free to approve a cure on terms different than those in the lease or contract so long as the cure is fashioned in a manner to comply with the requirements of section 365(b)(1) as to `adequate assurance' * * *." 2 King et al, Collier on Bankruptcy [15th ed.], II 365.04, p. 365-49; Moody v. Amoco Oil Co., 734 F.2d 1200, 1215 (7th Cir. 1984), cert. denied 469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321. Contra, In re Gomes Ranch, 85 B.R. 558 (Bankr.D.Mont. 1987) (all rights in contract lost where defaults not cured within 60 days).
The reported cases on what constitutes a "prompt" cure do not provide any sort of bright line test. In at least one case, prompt cure meant an immediate payment. In re Lafayette Radio Electronics Corp., 9 B.R. 993 (Bankr.E.D.N.Y. 1981). At the other extreme, a period of three years to cure a default under a beer distributorship agreement was held sufficiently prompt, but that holding was based in substantial part on a finding that the brewery that was the other party to the agreement had exacted unlawful and preferential payments from the debtor pre-petition. In re: Coors of North Mississippi, Inc., 27 B.R. 918 (Bankr.N.D.Miss. 1983). A proposed 60-month cure of defaults on a real property lease was held not prompt, where, among other factors, the proposed payment period for the cure was virtually co-extensive with the remaining life of the lease. In re R/P Int'l Technologies, Inc., 57 B.R. 869 (Bankr. S.D.Ohio 1985). A period of two years to cure defaults on a residential lease was held not prompt in In re Yokley, 99 B.R. 394 (Bankr.M.D.Tenn. 1989), and one year was similarly held not prompt in In re Daugherty, 102 B.R. 167 (Bankr.E.D.Mo. 1989).
The only cases the court has found dealing specifically with leases of motor vehicles are In re Berkshire Chemical Haulers, Inc., 20 B.R. 454 (Bankr.D.Mass. 1982) and General Motors Acceptance Corp. v. Lawrence, supra. In Berkshire Chemical Haulers, 18 months (the entire remaining term of the lease) was found not to constitute a prompt cure on a truck lease. And in Lawrence, the only reported case the court has found specifically addressing consumer automobile leases in a chapter 13 context, Bankruptcy Judge William L. Norton, Jr., after noting that "the term `promptly' demands a more immediate payment than `a reasonable time,'" opined that it was "unlikely that a period in excess of one year would be considered by this court to be a prompt cure of a default under Section 365(b)(1)(A)." 11 B.R. at 45. The court in that case directed the chapter 13 trustee "to pay the [arrearage] claim as soon as possible by paying to GMAC all funds remaining after payment of administrative expenses, monthly attorney's fee and payment on GMAC's main claim." Id. This, the court calculated, would cure the default within 10 months, which was "agreeable" to the creditor.
The arrearage in the present case amounts to somewhat more than 6 months of payments on the lease, and the lease, counting from the first payment due under the plan, has approximately 48 months to run. Under the circumstances, this court cannot find that any period in excess of one year — let alone a period that exceeds the remaining term of the lease by a full year — would constitute a "prompt" cure of the payment default. Accordingly, the court will sustain the objection to confirmation.
In so ruling, the court is not unmindful of the fact that the constraints imposed by § 365(b)(1)(A) impose a significantly greater burden on a chapter 13 consumer debtor who chose to lease rather than purchase his automobile, since chapter 13 provides a debtor with much more flexibility in restructuring a secured consumer debt than it does with a lease. That, however, is the price the debtor pays for the advantages (or perceived advantages) which leasing may offer over a traditional purchase transaction. The court is also not unmindful of the possible adverse impact on the debtor and other creditors from a forced rejection of an automobile lease (because the debtor lacks sufficient income to effect a prompt cure of the prepetition defaults), since under § 365(g), rejection gives rise to a potentially large prepetition claim if the lease still has a considerable period to run. Nevertheless, this court must apply the Bankruptcy Code as Congress has enacted it and is not free to ignore the plain language of the statute simply because a strict application may increase the burden on some chapter 13 debtors.
A separate order will be entered denying confirmation.