If you are renting an apartment and filing for Chapter 7 bankruptcy, you will have to make an important decision regarding the lease that you signed. The bankruptcy law considers unpaid rent as a form of unsecured debt; this debt may be discharged at the end of the bankruptcy process. However, your landlord may evict you for non-payment of current and future rent. If you wish to keep the lease and stay in the home, you can't discharge the back rent; you must pay it.
Bankruptcy and Leases
Chapter 7 bankruptcy is a process that protects you from collections and lawsuits. The bankruptcy court appoints a trustee to liquidate your non-exempt assets to repay unsecured creditors. At the end, if no assets are sold or if there is still debt after liquidation, your personal liability on eligible debts is discharged.
Under bankruptcy law, any back rent you owe at the time of filing as an unsecured, dischargeable debt. The rent you accrue after the filing is not dischargeable, as you didn't owe it at the time you filed your case.
Assumption of the Lease
If you wish to stay in your apartment, you may assume the lease by signing a new, supplemental agreement with the landlord called a lease assumption agreement. This will set the terms by which the landlord continues to rent you the apartment, subject to your bringing any back rent current and making future payments in full and on time.
Generally, landlords will not waive their right to past due rent in a lease assumption agreement, but sometimes they will negotiate terms to avoid having their rent discharged in bankruptcy, such as allowing you to pay the back rent over time or agreeing to reduce the amount.
If you do not assume the lease and you're behind on your rent, the landlord can kick you out, but the past due rent as of the filing date is discharged.
Rejection of the Lease
If you don't assume the lease, you must reject it. The law requires you to either assume or reject any leases within 60 days of the date you file the bankruptcy petition. Rejection means that you don't want to keep the lease and intend to leave the apartment. You will discharge any past due rent you owed at the time of the filing, but you will be responsible for any rent you owe if you stay more than 60 days after the case is filed.
The automatic stay of bankruptcy prevents the landlord from evicting you during the bankruptcy case unless he obtained a writ of possession prior to the bankruptcy filing. He can also ask the court for relief from the stay. Either way, the stay is over when the court orders it or when you receive your discharge, whichever happens first.
If the landlord obtained a writ of possession before you filed your bankruptcy, there is no stay, and he can make you vacate the premises without asking the bankruptcy court for anything.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.