It seems these days that you cannot obtain cell phone service, cable or internet service without a contract much less rent a storage building or an apartment without a lease agreement. Signing a lease is a part of our world and we all, at one time or another, have probably entered a lease for some reason. However, what happens when your circumstances change and you can no longer afford the rent or lease payments? In most cases, the language of a lease provides that you are responsible for all of the payments under the lease even if you abandon the property, return the item or otherwise terminate the lease. Furthermore, you may be responsible for the payment of a termination fee, attorney’s fees and costs if the creditor must hire an attorney to collect the debt you owe. It may seem as if you have no other option but to pay the debt or face a collection action. However, bankruptcy is an option for terminating the lease while discharging any past due and future payments under the lease agreement.

What happens to my back rent when I file bankruptcy?

If you are behind in your rent or lease payments when you file bankruptcy, the debt must be included on your bankruptcy schedules. Back rent is considered an unsecured debt just like credit card debt, medical bills and personal loans. When you file a bankruptcy petition, you are required to list every debt that you owe as of the date of the filing. This would include past due rent; therefore, you must list your landlord as a creditor. Because back rent is subject to the bankruptcy discharge just like most other unsecured debt, once you receive your bankruptcy discharge and your case is closed, you will no longer owe any of the past rent or lease payments under the lease agreement.

Can filing a bankruptcy delay eviction?

If you are facing an eviction, filing a bankruptcy case may delay the eviction for a few weeks or up to several months. Because the automatic stay goes into effect upon the filing of a bankruptcy case, the landlord is prohibited from taking any action to collect a debt, including but not limited to an eviction action, without prior approval of the bankruptcy court. Therefore, if your landlord chooses to do nothing, the automatic stay will prevent him from evicting you until your case is closed (anywhere from four to six months). However, if the landlord files a motion to lift the automatic stay, in the absence of evidence why the court should not grant his motion, the bankruptcy judge will likely grant the motion and allow the landlord to proceed with an eviction action in state court. Even if this occurs, you will have a few weeks to find a new place to live and move your belongings before the stay is lifted and the eviction process begins.

Bankruptcy allows you to break your lease

In addition to discharging back rent, the bankruptcy case will allow you to break the lease without paying termination fees or future rent. Lease agreements are considered executory contracts and are subject to bankruptcy law. The debtor may choose to assume the lease (continue paying rent according to the terms of the contract) or reject the lease (you are no longer responsible for any payments or penalties under the lease agreement). However, breaking a lease in bankruptcy does have its disadvantages.

If you reject the lease, the landlord can proceed with the eviction process because you are now in breach of the contract, even if you are current with your rent. Furthermore, if you have not signed a new lease agreement with another landlord, the credit impact from your bankruptcy may make it more difficult for you to find favorable terms for your new residence. Discussing the timing of your bankruptcy filing with an experienced bankruptcy attorney can help you achieve the goals of breaking your lease, discharging your back rent and finding a new place to live.

Bankruptcy is a very effective way to deal with back rent and lease agreements; however, an experienced bankruptcy attorney can explain the advantages, disadvantages and timing of the bankruptcy filing and help you decide what is best for your situation. Filing a bankruptcy case is an important decision and the first step in solving your debt problems. Having an experienced bankruptcy attorney like Gene F. Turnwald on your side to guide you through the process and advise you of your rights is essential for a successful bankruptcy. Attorney Turnwald understands the stress and anxiety that his clients are experiencing and strives to make sure that each client’s bankruptcy process is as stress-free as possible. Contact our office today to schedule your free bankruptcy consultation so we can help you.