OPINION AND ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT ORDER DATED NOVEMBER 16, 2015, (1) DENYING DEBTORS' MOTION TO DETERMINE LEASE ASSUMPTION AGREEMENT INVALID AND UNENFORCEABLE; AND (2) DETERMINING THE LEASE ASSUMPTION AGREEMENT IS VALID

MATTHEW F. LEITMAN, District Judge.

When a bankruptcy court issues a discharge in favor an individual debtor, the discharge generally relieves the debtor of his or her pre-petition debts. But two provisions of the United States Bankruptcy Code allow a debtor to agree to remain liable for such debts after a discharge under certain circumstances. The first provision, 11 U.S.C. § 365(p) ("Section 365(p)"), allows a debtor to enter into an agreement to assume a pre-petition personal property lease. Section 365(p) does not require a bankruptcy court to review or approve such an agreement. The second provision, 11 U.S.C. § 524(c) ("Section 524(c)"), more broadly allows a debtor to enter into an agreement with any creditor to reaffirm the debtor's pre-petition obligation to that creditor and to carry that debt forward after the discharge. A reaffirmation agreement under Section 524(c) requires, among other things, careful review by, and approval from, a bankruptcy court.

The primary question presented in this appeal is whether a lease assumption agreement entered into under Section 365(p) must also satisfy the reaffirmation requirements of Section 524(c). Stated another way: Is a lease assumption agreement entered into pursuant to Section 365(p) enforceable following discharge if the debtor did not also reaffirm the lease's underlying debt (with bankruptcy court approval) under Section 524(c)?

In this case, the United States Bankruptcy Court for the Eastern District of Michigan (the "Bankruptcy Court") answered that question in the affirmative. In a written order dated November 16, 2015 (the "Bankruptcy Court Order"), the Bankruptcy Court held that a lease assumption agreement under Section 365(p) between Debtor-Appellants Jane Marie Williams and Anthony DeMark Williams (together, "Appellants") and Creditor-Appellee Ford Motor Credit Company, LLC ("Ford") was enforceable after discharge even though Appellants did not reaffirm the debt underlying the lease pursuant to Section 524(c). (See ECF #1 at 4, Pg. ID 4.) The Court agrees. The Court therefore AFFIRMS the Bankruptcy Court Order.

RELEVANT FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On June 8, 2015, Appellants filed a joint voluntary bankruptcy petition under Chapter 7, Title 11 of the United States Bankruptcy Code with the Bankruptcy Court (the "Petition"). (See ECF #4 at 142, Pg. ID 151.) They included with the Petition a form titled "Schedule B — Personal Property." (See id. at 84, Pg. ID 93.) The Schedule B form instructed Appellants to list any "[a]utomobiles, trucks, trailers, and other vehicles and accessories" they claimed as personal property. (Id.) Appellants listed two vehicles: a 2006 Ford Explorer and a 2015 Ford Fusion1 (the "Fusion"). Appellants also included the following note next to the Fusion: "leased — is being assumed." (Id.) Appellants further supplemented the note by filing a "Statement of Intention" with the Petition. In the "Statement of Intention," Appellants said that they intended to assume the Fusion lease pursuant to 11 U.S.C. § 365(p)(2). (See id. at 117, Pg. ID 126.)

On June 15, 2015, counsel for Ford informed Appellants via email that the company would permit Appellants to assume the lease. (See id. at 37, Pg. ID 46.) Ford's counsel attached to the email a "Proposed Lease Assumption Agreement" and a "Proposed Stipulation for Assumption of the Lease Agreement." (See id.) Ford's counsel requested that Appellants return the documents fully executed so that they could be filed with the Bankruptcy Court. The Proposed Lease Assumption Agreement provided, in pertinent part, that Appellants agreed to assume the lease without undertaking the reaffirmation procedures set forth in 11 U.S.C. § 524:

(Id. at 5, Pg. ID 14; emphasis added.)

On July 16, 2015, Appellants and their counsel signed the Proposed Lease Assumption Agreement and the Stipulation for Assumption of Lease Agreement. (See id.; see also id. at 125-26, Pg. ID 134-35.) They then sent the executed documents to Ford. (See id.) Ford filed a "Stipulation for Assumption of the Lease Agreement" with the Bankruptcy Court on July 28, 2015, and submitted to that court the fully-executed lease assumption agreement (the "Agreement"). (See id. at 126, Pg. ID 135.)

Appellants then had a change of heart. On August 4, 2015, Appellants filed with the Bankruptcy Court a notice titled "Rescission of Lease Assumption Agreement" in which they sought to rescind the Agreement (the "Rescission Notice"). (See id. at 127, Pg. ID 136.) On September 11, 2015, Ford's counsel sent a letter to Appellants' counsel challenging the Rescission Notice. (See id. at 132, Pg. ID 141.) Ford's counsel said that there is "nothing in the Bankruptcy Code or case law that permits rescission of a lease after it has been assumed." (Id.) Ford's counsel then said that "Ford Credit will proceed as if the lease has been assumed unless [counsel] provide[d] [him] with the legal basis that [Appellants] can subsequently rescind." (Id.)

On September 15, 2015, the Bankruptcy Court entered an Order of Discharge, which released Appellants from their pre-petition debts. (See id. at 119, Pg. ID 128.) It then issued a "Final Decree" closing the case three days later. (See id. at 122, Pg. ID 131.) The Bankruptcy Court did not address the Rescission Notice at that time.

On September 22, 2015, Appellants filed a motion to reopen the bankruptcy to contest the validity of the Agreement. (See id. at 185, Pg. ID 194.) Appellants argued that the Agreement was invalid because they did not reaffirm the obligations in the Fusion lease under 11 U.S.C. § 524(c). Ford countered that 11 U.S.C. § 365(p) governs lease assumption agreements. It argued that when a debtor assumes a lease under that provision, the assumption is valid and enforceable following discharge even if the debtor did not also reaffirm the lease obligation under 11 U.S.C. § 524(c).

The Bankruptcy Court agreed with Ford and held in the November 16, 2015, Bankruptcy Court Order that the Agreement was "valid and cannot be rescinded." (ECF #1 at 4, Pg. ID 4; See also ECF #4 at 67, Pg. ID 76.) The Bankruptcy Court concluded "that [Section] 524 doesn't apply to lease assumptions which are governed by [Section] 365" and that "pursuant to Section 365, [the Agreement] cannot be rescinded because there is no provision in 365 which allows for the [rescission] . . . ." (Id. at 67-68, Pg. ID 76-77.)

On December 1, 2015, Appellants appealed the Bankruptcy Court Order in this Court. (See ECF #1 at 3, Pg. ID 3.)

STANDARD OF REVIEW

The Court reviews the Bankruptcy Court's legal conclusions de novo and its findings of fact for clear error. See In re Dilworth, 560 F.3d 562, 563 (6th Cir. 2009). The parties agree that there are no factual disputes at issue in this appeal. (See Appellants' Br., ECF #6 at 3, Pg. ID 209; Ford's Br., ECF #8 at 5, Pg. ID 282.) Accordingly, the Court reviews the Bankruptcy Court's legal conclusions only.

ANALYSIS

A. The Relevant Statutes

This appeal turns on the interplay between Section 365(p) and Section 524(c). Accordingly, the Court begins with the plain language and operation of those statutes.

1. 11 U.S.C. § 365(p)

Section 365(p) specifically addresses the assumption of a personal property lease by a debtor. It provides as follows:

A lease assumption under Section 365(p) proceeds in several steps:

In re Perlman, 468 B.R. 437, 439 (Bankr. S.D. Fla. 2012) (quotations and citations omitted). Importantly, Section 365(p)'s text does not require a bankruptcy court to review or approve a lease assumption agreement. See In Re Ebbrecht, 451 B.R. 241, 245 (Bankr. E.D.N.Y. 2011).

2. 11 U.S.C. § 524(c)

Section 524(c) provides a general framework under which a debtor may agree to remain personally liable for a debt obligation following entry of discharge. It provides:

"Because reaffirmation agreements are contrary to the stated goal of a debtor receiving a fresh start," they may be "subject to intense judicial scrutiny and must comply with all statutory requirements." Ebbrecht, 451 B.R. at 243-44. As a federal bankruptcy treatise explains, the strict requirements of Section 524(c) impose

2 The Law of Debtors and Creditors § 15:51 — Reaffirmation, Westlaw (database updated November 2015) (quotations and citations omitted); see also Thompson v. Credit Union Fin. Grp., 453 B.R. 823, 828 (W.D. Mich. 2011).

B. The Interplay Between Section 365(p) and Section 524(c)

The question of whether a lease assumption agreement under Section 365(p) is enforceable following discharge even if the agreement has not been reaffirmed under Section 524(c) is a difficult one that has deeply divided federal courts. Compare Perlman, 468 B.R. at 441 (holding that a lease assumption agreement made pursuant to Section 365(p) is valid even though the underlying debt was not reaffirmed under Section 524(c)), with Thompson, 453 B.R. at 830 (holding that a lease assumption agreement made pursuant to Section 365(p) is enforceable only where the debt underlying the lease is also reaffirmed under Section 524(c)). This division stems in part from the fact that Section 365(p) "is not a model of clarity." In re Garaux, 2012 WL 5193779, at *2 (Bankr. N.D. Ohio, Oct. 19, 2012).

The courts that have required debtors entering into lease assumption agreements under Section 365(p) to additionally reaffirm the debt under Section 524(c) frequently cite the Bankruptcy Code's policy favoring debtor protection. These courts explain that bankruptcy is a mechanism for providing debtors with a "fresh start." See Thompson, 453 B.R. at 828. But by entering into lease assumption agreements under Section 365(p), debtors are compromising that fresh start by "releasing substantial and consequential rights, protections and benefits." Garaux, 2012 WL 5193779, at *4. Requiring a debtor who has entered into a lease assumption agreement under Section 365(p) to also reaffirm the underlying obligation under Section 524(c) ensures that debtors do not relinquish their "fresh start" without court oversight. As the court in Thompson explained:

Thompson, 453 B.R. at 828, 829 (quotations and citations omitted).

These courts also assert that the plain language of Section 365(p) supports the conclusion that the debt underlying a lease assumption agreement must be further reaffirmed under Section 524(c): "Section 365(p)(2) uses the language of assumption, but the assumption is not self-executing . . . . Rather, [Section] 365(p) says that, after certain conditions are satisfied, the liability under the lease will be assumed, suggesting that more is needed for assumption of liability." Id. at 827-28 (emphasis added). That "something more," these courts conclude, is full compliance with the requirements of Section 524(c). See id.; see also In re Creighton, 427 B.R. 24, 28 (Bankr. D. Mass. 2007).

In contrast, other courts have offered three main reasons for concluding that a lease assumption agreement under Section 365(p) may be enforced following discharge even if the underlying debt is not reaffirmed under Section 524(c). First, these courts highlight that Section 365(p) says nothing about the reaffirmation process under Section 524(c). They reason that "had Congress intended for leases to be both assumed under Section 365(p) and reaffirmed under Section 524, it would have said so," but it "has not." Ebbrecht, 451 B.R. at 247; see also In re Bailly, 522 B.R. 711, 716-17 (Bankr. M.D. Fla. 2014).

Second, these courts also assert that requiring reaffirmation under Section 524(c) would render Section 365(p) superfluous:

Bailly, 522 B.R. at 716.

Third (and finally), these courts highlight that requiring reaffirmation under Section 524(c) after a debtor has entered into a lease assumption agreement under Section 365(p) could produce anomalous results:

In re Mortensen, 444 B.R. 225, 230 (Bankr. E.D.N.Y. 2011). Indeed, "[i]f reaffirmation agreements must accompany lease assumptions, a lessor could face the unenviable position of being bound by a lease assumption — which does not require judicial approval — but having its reaffirmation denied by the court." Bailly, 522 B.R. at 716.

This Court agrees with those courts that have enforced lease assumption agreements under Section 365(p) even without reaffirmation under Section 524(c). Section 365(p) specifically addresses lease assumption agreements and does not expressly require that the underlying debt be reaffirmed under Section 524(c). Requiring such reaffirmation would be adding a step that Congress chose not to include; would strip Section 365(p) of its independent significance; and would create anomalous results. For all of these reasons, the Court concludes that a lease assumption agreement that complies with Section 365(p) is enforceable following discharge even if the debt that is the subject of the agreement was not reaffirmed under Section 524(c). Thus, in this appeal, the Agreement is valid even without reaffirmation under Section 524(c) if it complies with Section 365(p). The Court now turns to that question.

C. The Agreement Complies with Section 365(p)

Appellants have asserted that the Agreement does not comply with Section 365(p) — and is therefore invalid — for two reasons. First, Appellants argue that they entered into the Agreement during a time when the Trustee had the exclusive authority to make decisions concerning a possible continuation of the Fusion lease. (See Appellants' Br., ECF #6 at 16, Pg. ID 218.) In support of this argument, Appellants cite 11 U.S.C. § 365(p)(1). That statute provides that "[i]f a lease of personal property is rejected or not timely assumed by the trustee [within 60 days of the petition's filing], the leased property is no longer property of the estate and the stay under section 362(a) is automatically terminated." Appellants contend that under this statute, "the right to assume a lease belongs exclusively to the Chapter 7 Trustee for the first 60 days after the order for relief, unless the Trustee rejects the lease or the lease is deemed rejected." (Id.) Appellants insist that their assumption of the Fusion lease was invalid because the assumption occurred (1) during the Trustee's exclusive 60-day window to assume the lease, and (2) in the absence of a rejection of the lease by the Trustee.

At least one bankruptcy court in this District has accepted a similar argument — albeit in an order that does not contain analysis (which that court may have offered on the record, but which has not been provided to this Court). See In re Robert Arthur Houvener, No. 09-42209-TJT (Bankr. E.D. Mich. Mar. 18, 2009) (holding that a debtor's lease assumption agreement was "invalid and unenforceable[] because the Debtor and [the creditor] . . . entered into such agreement before the Chapter 7 trustee rejected the lease or the lease was deemed rejected under 11 U.S.C. § 365(d)(1).")

However, another bankruptcy court has rejected the argument that Section 365(p) grants the trustee the exclusive authority to assume or reject a lease for personal property within the first sixty days after a petition is filed:

Garaux, 2012 WL 5193779, at *2 (emphasis added). The Court agrees with the reasoning in Garaux and therefore rejects Appellants' argument that the Agreement violates Section 365(p) because Appellants entered into it during the first sixty days after they filed the Petition.

Second, Appellants argue that the Agreement did not comply with Section 365(p) because they did not timely inform Ford that the Fusion lease was assumed. In support of this argument, Appellants rely on 11 U.S.C. § 365(p)(2)(B). That statute provides that the debtor must notify the lessor in writing "that the lease is assumed" no later than 30 days after the lessor "notif[ies] the debtor that it is willing to have the lease assumed." See 11 U.S.C. §§ 365(p)(2)(A)-(B). Appellants proffer that they did not inform Ford that they (Appellants) had assumed the lease until after the 30-day notice period had elapsed. Appellants contend that this delay renders the Agreement invalid. (See Appellants' Br., ECF #6 at 19, Pg. ID 221.)

The Court also rejects this argument. Under 11 U.S.C. § 365(p)(2)(B), it was Appellants' burden to notify Ford within 30 days of receiving the Proposed Lease Assumption Agreement whether they had assumed the Fusion lease. When Appellants executed the Agreement after the 30-day notice period, Ford — and not Appellants — had the right to reject the executed Agreement. But Ford accepted the Agreement without objection; Ford therefore chose to waive any right it may have had to reject the Agreement for Appellants' noncompliance with 11 U.S.C. § 365(p)(2)(B). Thus, Appellants cannot escape their obligations under the Agreement on the ground that they provided tardy notice of acceptance.

CONCLUSION

For the reasons stated above, IT IS HEREBY ORDERED that the November 16, 2015, Bankruptcy Court Order (1) Denying Debtors' Motion to Determine Lease Assumption Agreement Invalid and Unenforceable; and (2) Determining the Lease Assumption Agreement Is Valid is AFFIRMED.