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In re Bailey

United States Bankruptcy Court for the Western District of Arkansas
326 B.R. 156 (W.D. Ark. 2005)


In May 2004, Keith Bailey (defendant) filed a petition under Chapter 13 of the United States Bankruptcy Code. Bailey’s proposed bankruptcy plan acknowledged two secured-investment claims belonging to Lafayette Investments, Inc. (Lafayette) (plaintiff) that had resulted from the leases for two tractors. Lafayette filed an objection to Bailey’s petition, arguing that Bailey had to complete performance of all lease obligations because Lafayette was not a secured creditor, but a lessor. Bailey argued that the transaction constituted a sale of property and should be handled as outlined in the plan. Donald Fritsche, who had negotiated the leases on Lafayette’s behalf, testified to the following lease terms: (1) Lafayette received down payments for each tractor; (2) Bailey was to make monthly payments for each tractor; (3) Bailey had an option to purchase the tractors at the end of the lease term for $2,230 and $2,080; (4) if Bailey defaulted, he would still owe the remaining lease payments unless Lafayette could mitigate the damages; and (5) Bailey was required to pay all repair expenses. Fritsche also testified that the units would be worth $15,000 each upon the end of the lease. The agreement provided that Missouri law should govern. The bankruptcy court considered Lafayette’s objection.

Rule of Law


Holding and Reasoning (Mixon, J.)

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