Howard Metzenbaum: “this amendment resolves the debate over how rent-to-own contracts should be treated in bankruptcy cases. Rent-to-own…”

“this amendment resolves the debate over how rent-to-own contracts should be treated in bankruptcy cases. Rent-to-own agreements are consumer transactions in which consumers agree to make weekly payments for appliances or furniture with the promise of owning them after a period of time. The rent-to-own companies attempt to avoid credit sales and usury laws by writing the agreements as leases, terminable by the consumer at any time. Typically the consumers pay many times the true value of the property under these agreements, amounts which the Pennsylvania attorney general has found to be the equivalent of 100-200 percent in interest. Consumers have argued that these agreements should be treated as credit sales in bankruptcy and many courts have agreed that this is correct. If the transaction is treated as a sale for purposes of bankruptcy, the consumer is treated like any other purchaser of goods on credit, and may keep possession of the goods by paying to the creditor the lesser of the balance of the contract or the property's current value, the same amount the creditor would realize if the goods were repossessed. In a chapter 7 case, this payment is normally in a lump sum. In a chapter 13 case it is made under the chapter 13 plan, with interest--at a fair rate--added.”