Filing for bankruptcy is often a difficult but necessary decision to regain financial stability. One of the most common concerns people have during this process is how bankruptcy will affect their existing lease agreement, whether for their residence or business. Understanding your legal rights and obligations during the bankruptcy process is crucial in protecting yourself and your financial future. Continue reading for more information and speak with a knowledgeable Bergen County bankruptcy lawyer to set up your free consultation today.
How Does Bankruptcy Affect My Lease Agreement?
The way in which your lease agreement is affected by filing for bankruptcy depends on the specific circumstances of the situation. One of the most important considerations during this time is the automatic stay.
An automatic stay is an immediate injunction ordered by the court that stops collection actions against a debtor after they file their bankruptcy petition. If you file for bankruptcy, the court will implement the automatic stay to protect you and provide relief from collection efforts, as well as ensure an orderly and equitable outcome for creditors.
The moment the automatic stay is enacted, your landlord cannot demand past-due rent, start a new lawsuit against you, or enforce lease remedies without procuring permission from the court. While there are exceptions, the automatic stay generally offers these protections.
Does it Matter Which Chapter I File With?
After filing for bankruptcy, you can either assume or reject your lease. Assuming means you will keep the lease, cure past-due amounts, and promise to stay current in the future. Rejecting means terminating the lease and ending your future obligations.
There are several types of bankruptcy, most notably Chapter 7 and Chapter 13. Chapter 7 is liquidation bankruptcy, which eliminates unsecured debts, like credit card balances and medical bills, whereas Chapter 13 involves a repayment plan allowing you to reorganize debt over 3 to 5 years while maintaining your assets.
Under § 365(d)(1) of Chapter 7 bankruptcy, you generally have 60 days to either assume or reject a lease. If no action is taken, it will be considered rejected. Any rent that was not paid before you filed can be considered a dischargeable claim.
Under Chapter 13 bankruptcy, you can either assume or reject your lease at any time before the confirmation of your repayment plan, though the landlord may be able to request an earlier date. If you can resume timely rent payments going forward, your arrears can be spread across your repayment plan and paid back over the 3 to 5-year period. If you reject the lease, you can move out without any future liability for rent. Past-due money will be handled like any other unsecured debt.
While bankruptcy is governed by federal law, issues like eviction procedures and lease terms may also depend on New Jersey’s landlord-tenant laws. Bankruptcy law can be complex, so it is crucial that you seek the help of a legal professional when filing. Reach out to a skilled attorney for more information today.