Are Apartment Leases Dischargeable in Chapter 7 Bankruptcy?

By Tom Streissguth

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 stay in your home, you have options.

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 stay in your home, you have options.

Terms

Chapter 7 bankruptcy is a process that protects you from collections and lawsuits. The bankruptcy court appoints a trustee to liquidate (sell) your assets to repay secured creditors. A secured creditor has a claim on property if you default on a loan; an unsecured creditor has no such claim, and Chapter 7 will eventually discharge (cancel) such a debt. Since you have not pledged any property as collateral for rent, the bankruptcy laws consider any back rent you owe at the time of filing as an unsecured debt, and can thus be discharged. A trustee in a Chapter 7 claim may set aside the lease contract while the case remains open; any contracts you sign after the discharge are binding.

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Assumption

If you wish to stay in your apartment, you may assume the lease by signing a new, supplemental agreement with the landlord. 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.

Rejection

You also have the option to break or "reject" the lease by not paying rent. The law requires you to either assume or reject all executory contracts within 60 days of the date you file the bankruptcy petition. The law does not allow eviction proceedings while you are in bankruptcy, unless the landlord has won a court judgment and the right to repossession of the apartment before you filed. During the bankruptcy case, the court's automatic stay prevents any legal action against you for debts, including rent. After discharge, however, you will no longer have any right to stay in the apartment.

Advantages of Discharge

If you are in dire straits financially, discharging past-due rent can help with the "fresh start" afforded by Chapter 7 bankruptcy. However, with a discharge, eventually you will lose your abode unless you can come to an agreement with the landlord. You should carefully consider the pros and cons of an assumption agreement before you file for bankruptcy, and you should also arrange for alternative lodging well in advance, if possible. It is not easy to find a new apartment or home for rent, with a recent bankruptcy on your credit report.

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Eviction Notice & Bankruptcy

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Bankruptcy & Lease Rejection

Leases form a legal agreement between two parties, both of whom agree to do something under the terms of the contract. The lessor provides property for the lessee's use, and in exchange, the lessee makes periodic payments. In personal bankruptcy, the property is typically real estate or an automobile, and special rules determine what becomes of the contract when you file for Chapter 7 or Chapter 13.

What Does a Chapter 7 Statement of Intention Mean?

Unlike Chapter 13 bankruptcy where you repay most of your debts to your creditors, most debts are forgiven under a Chapter 7 bankruptcy after some of your assets are seized and sold. For the court to determine which assets are to be liquidated, you must submit a Statement of Intention that explains how you propose to maintain or dispose of your property.

What Happens if I Don't Reaffirm My Mortgage After Bankruptcy?

Filing for Chapter 7 bankruptcy is a means to discharge your debts and get a financial "fresh start." A home mortgage is a debt secured by property: the home in which you live. Filing for bankruptcy does not cancel your obligation to repay a loan if you remain in the home, nor does it end the bank's lien on the home, in case you should default on the loan. During a bankruptcy, you should consider the pros and cons of "reaffirming" your mortgage agreement.

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