Leases and Bankruptcy

Renters often inquire about what will happen to their residential (apartment) lease when they file bankruptcy.  The bankruptcy code imposes an "automatic stay" on all collection and enforcement proceedings upon filing of the bankruptcy petition.  This stay prevents eviction proceedings or other actions for possession or monetary damages without the bankruptcy court's permission as long as the debtor/tenant continues to timely perform all obligations of the lease (such as continuing to pay your rent on time).

Under Chapter 7 the trustee has 60 days after the debtor files bankruptcy to reject or accept the lease.  Generally, the trustee will not accept, or reaffirm, the lease because most leases have no value to the trustee.  The only exception would be a lease with a below market lease payment where the trustee believes someone may pay for the assignment of the lease.  For example, if your rent is $500 a month but the trustee believes that he or she could lease the apartment for a significantly higher monthly amount, then the trustee may accept your lease.

If the the trustee does not accept the lease then the debtor/renter can either reject (terminate) or assume (continue) unexpired leases.  The lease can only be assumed if the debtor cures any defaults (such as a past due amount owed to the landlord).  If the debtor rejects the lease, the entire lease obligation is treated as a pre-petition dischargeable debt and the landlord can evict the debtor any time as the lease is no longer in effect.  However, the landlord may still accept the debtor's monthly rent payments and the debtor's occupancy.

Section 362(b)(22) of the Bankruptcy Code provides that the automatic stay automatically ceases 30 days after filing bankruptcy.  Then the landlord is permitted to continue any eviction, unlawful detainer or similar proceeding against the debtor/tenant where the landlord obtained a judgment for possession against the debtor/tenant prior to the bankruptcy filing.  However, the debtor/tenant can challenge the end of the automatic stay pursuant Section 362(b)(22) under certain specific circumstances.  Additionally, even if the debtor is evicted after the stay is lifted, the debtor will have no further personal liability for any rent payments not made.  For additional information please contact The Smalley Law Firm at (913) 601-3549 for a free initial consulation or visit our website at http://www.thesmalleylawfirm.com