United Airlines, Inc. v. HSBC Bank USA, N.A.

By In the United States Court of Appeals for the Seventh Circuit

Release Date: 2005-07-26
Genre: Law

Description

What is a "lease" in federal bankruptcy law? Businesses that do not pay up front for assets may acquire them via unsecured debt, secured debt, or lease; in each event the business pays over time. Similar economic function implies the ability to draft leases that work like security agreements, and secured loans that work like leases. Yet the Bankruptcy Code of 1978 distinguishes among these devices. A lessee must either assume the lease and fully perform all of its obligations, or surrender the property. 11 U.S.C. 365. A borrower that has given security, by contrast, may retain the property without paying the full agreed price. The borrower must pay enough to give the lender the economic value of the security interest; if this is less than the balance due on the loan, the difference is an unsecured debt. See 11 U.S.C. 506(a) and 1129(b)(2)(A). There are other ways in which the Code treats leases differently from security interests, but they dont matter to todays dispute.

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