What Happens to My Lease in Chapter 13 Bankruptcy?
How You Assume a Lease in Chapter 13 Bankruptcy
While this article focuses on land, housing or commercial properties, the same law applies to leased vehicles, equipment or anything else that you have obtained by use of a lease.
In a Chapter 13 bankruptcy, if you want to keep or stay in leased property, you must “assume the lease” in writing before your Chapter 13 plan is confirmed by the Bankruptcy Court. Assuming the lease means that all the lease rights and obligations are reinstated as if there was no bankruptcy filed.
You will have to cure any amount you are behind on the lease within a reasonable amount of time. What is reasonable will depend on the nature of the lease, and your circumstances.
What if You Do Not Assume the Lease in Chapter 13 Bankruptcy?
If you assume the lease and you cannot make the lease payments, the landlord can kick you out even if you are in a Chapter 13 reorganization. The creditor holding a car lease has the same ability to take back the car.
You Must Give the Landlord Notice of Your Chapter 13 Bankruptcy to Assume a Lease
If you do not give proper notice to the landlord of the filing of your Chapter 13 bankruptcy, the landlord will not know to stop any eviction or collection actions.
If you are abandoning the leased property and you do not list the landlord in the bankruptcy, the landlord may not be able to timely file a claim in your case. If that happens, your obligation to the landlord is NOT wiped out by your Chapter 13 bankruptcy. Simply put, the landlord must be given notice of the case so they have an opportunity to file a claim before the time to do so runs.
If the landlord does not file a claim because they were not properly noticed, that does NOT mean the landlord can go after you at that time for money. They have to wait until your Chapter 13 case is over as the automatic stay is in place. This means they cannot try to collect money from you until your case is over.
What if You Reject the Lease in a Chapter 13 Bankruptcy?
If you do give timely notice to the landlord of the Chapter 13 Bankruptcy and you reject the lease, the landlord cannot go after you for money. The landlord becomes an unsecured creditor like credit cards and personal loans. If the landlord files a claim in your case, the landlord will get the same percentage of any payments to unsecured creditors in the plan. That could be as little as 0% or as high as 100% depending on your plan. If they do not file a timely Proof of Claim they are wiped out and get nothing.
This is very different from a Chapter 7 bankruptcy. In Chapter 7 bankruptcy, if there are no assets and you want to reject to lease, the lease obligation is wiped out.
In Chapter 7, if the unsecured creditors were getting nothing, the debt would be wiped out even if the landlord were accidentally omitted. None-the-less, the landlord still has the right to be paid fair value of the use of the property after you filed bankruptcy.
In Chapter 13, if you are not reaffirming the lease and timely curing the amount you are behind, the landlord can and often will file a motion for “relief from the automatic stay.” That means the landlord will ask the Bankruptcy Court Judge to allow them to kick you out or take back the leased property. You do not get the right to stay in the property free after your case is filed.
If you have a lease and you want to stay in the property, the only way to do so would be to assume the lease and timely cure the arrearages prior to confirmation of plan.
If you do not cure the lease arrearages before confirmation of the Chapter 13 plan, the lease is automatically rejected by law. Simply put you cannot reaffirm a lease if it is not done timely.
You Cannot Assume a Lease in Chapter 13 Bankruptcy if it Has Already Ended
Of course, “assuming the lease” can only happen if there is a lease to assume. If the lease has already been terminated under its’ terms there can be no cure. The best examples would be failure to cure the breach of the lease timely before you filed our Chapter 13 case or the term of the lease was over.
The same would be true in a month-to-month tenancy as well. There is no right to assume something that does not exist. If you only have a month-to-month tenancy rights, you do not get a better deal than the contract rights you had before filing.