453 B.R. 50
Bankr. E.D.N.Y.2011Background
- Debtors filed under Chapter 13; lease with Ford Motor Credit for 2007 Ford Edge was not listed on Schedule B but later acknowledged in amended plans.
- Second amended plan (Aug. 2008 and Sept. 2008) stated assumption of the Ford Lease, with postpetition payments to be made directly to the lessor outside the Plan and surrender of the vehicle at lease end.
- Debtors reportedly defaulted on the lease after assumption; Debtors surrendered the vehicle around Oct. 2010 and Ford liquidated it, leaving a deficiency.
- Ford seeks an administrative claim under 11 U.S.C. § 507(a) for the remaining lease balance plus attorneys’ fees incurred in enforcing the lease.
- The Court sua sponte considers whether a lessor of a personal-property lease assumed under a Chapter 13 plan is entitled to an administrative expense for post‑assumption breach and how such a claim should be treated under the Plan.
- Debtors did not oppose the Motion; the Court awards a § 507(a) administrative claim and requires a plan modification to address payment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-assumption breach of an assumed personal-property lease in Chapter 13 yields an administrative expense. | Ford seeks § 507(a) priority for the post-assumption deficiency. | Debtors argue no automatic administrative status for post-assumption breach. | Yes, Ford may receive an administrative claim for the deficiency. |
| Whether § 365(p)(3) governs treatment of a Chapter 13 lease that is not rejected. | Ford relies on post‑assumption obligations as estate liabilities. | No express criteria in § 365(p)(3) for plan approval of lease assumption; no automatic claim. | § 365(p)(3) does not create automatic administrative priority; analysis required on case-by-case basis. |
| How the assumed lease obligations should be treated under the Plan and dischargeability. | Lease obligations provided for by the Plan may be discharged; deficiency is an admin claim. | If outside the Plan, not dischargeable as plan debt. | Lease obligations discharged if provided for by the Plan; administrative claim for deficiency may be paid under § 507(a) and Plan may require modification. |
| What procedural steps are required to address payment of the § 507(a) claim. | Administrative claim should be allowed without plan modification. | Plan modification necessary to provide for payment of such claim. | Debtors must file a motion to modify the Plan within 21 days to address payment of the claim. |
Key Cases Cited
- Mortensen, 444 B.R. 225 (Bankr.E.D.N.Y. 2011) (communications about lease assumption; relevance to post-assumption treatment of leases in Chapter 13)
- Michalek, 393 B.R. 642 (Bankr.E.D. Wis. 2008) (administrative priority for post‑assumption breach; limits and need for analysis of plan impact)
- Parmenter, 527 F.3d 606 (6th Cir. 2008) (rejects automatic administrative treatment for post-assumption lease breaches in Chapter 13)
- Klein Sleep Prods., 78 F.3d 18 (2d Cir. 1996) (limits of administrative claims for post‑assumption lease charges; benefit to estate analysis)
- Benn, 362 B.R. 1 (E.D. Mich. 2007) (disallowing admin claim for post‑assumption lease default where property vested in debtor)