Sometimes when someone has become overwhelmed with debt and is considering bankruptcy, they also have fallen behind on their rent or on payments on leased cars or furniture. Regardless of whether someone is behind on lease payments or is up to date, they often have questions about how their lease might be affected by their Chapter 7 or Chapter 13 filing.
Leases are known as executory contracts in a bankruptcy case, and the debtor can either assume the lease or reject it. Sometimes the decision whether to assume or reject the lease will be in the hands of the bankruptcy trustee and will depend on how the leases affect your bankruptcy estate and potential payment of creditors.
Assuming the lease allows the debtor to retain the leased property, whether it’s an apartment, a car, or a piece of furniture. If the lease is rejected, then the debtor must relinquish the property. A debtor generally has 60 days to decide whether to assume or reject the lease.
An experienced Ohio bankruptcy lawyer can discuss your options for handling your leases and how they’d be affected by either a Chapter 7 or a Chapter 13 filing, and whether it might be best for you to assume or reject the lease.
Assuming a Lease
When you decide to assume a lease, you’re responsible to catch up any payments that may be past due and then to pay the lease in accordance with your agreement with the landlord, car dealership, or other lessor. If you filed a Chapter 13, you may be able to spread the past due payments out over time through your Chapter 13 plan.
You may be asked to sign a reaffirmation agreement, which is like a contract in which you once again agree to abide by the terms of the lease, including making timely payments. If you default on your lease after your bankruptcy is filed and you have assumed or reaffirmed the lease, the lessor will be able to take action against you to terminate the lease and recover the property. That could include evicting you from leased premises such as an apartment, or repossessing your leased car.
Rejecting a Lease
Rejecting a lease gets you out of the contract, and past due payments typically can be discharged through your Chapter 7 or Chapter 13 bankruptcy. This may be a good option if the payments are more than you can afford or your past due payments are more than you can feasibly catch up.
Evictions and Bankruptcy Filings
If you’re facing an eviction from a rental property, a bankruptcy filing may give you some temporary breathing room while you figure out your next step. When you file bankruptcy, an automatic stay goes into effect that prevents creditors from taking any action against you without first getting permission from the bankruptcy court. If your landlord has filed an eviction but hasn’t yet gotten a judgment against you, the stay would halt the eviction case and you may have an opportunity to either catch up your rent payments or get out of the lease without further penalties. An Ohio bankruptcy lawyer can look at your individual situation and discuss whether a bankruptcy might help you. Contact Cleveland bankruptcy law firm Luftman, Heck & Associates for a free consultation on your case today at (216) 586-6600.