In re Bailey
United States Bankruptcy Court for the Western District of Arkansas
326 B.R. 156 (W.D. Ark. 2005)
Keith Bailey (defendant/debtor) leased two tractors from Lafayette Investments (plaintiff), making a down payment and monthly payments, with an option to buy each tractor at lease-end for around $2,000–$2,200. If Bailey defaulted, he remained liable for all remaining lease payments, and he bore all repair costs. Each tractor would be worth roughly $15,000 at lease-end. When Bailey filed Chapter 13 bankruptcy and treated Lafayette as a secured creditor rather than a lessor, Lafayette objected, arguing it was a true lessor entitled to full performance of the leases.
Whether a written agreement styled as a lease instead creates a security agreement when the lessee has no right to terminate the agreement.