bk and breaking a lease

[blankslate]

I just got the official word today that I will be transferring to L.A. on March 1st. I have a lease that doesn't expire until June. My landlord is a very cool lady, but also a business woman when she comes down to it (as she should be, I applaud her) IF for some reason she wanted to hold me to the lease, does the bankrutpcy void that contract?

I know from working in the entertainment industry that bk used to void all contracts which is why a lot of big name celebrities filed for bankruptcy. I believe that was before the new laws because I haven't seen that happening for several years.

My last day for objections is March 9th. If I had to, could I still ammend my creditors and add the lease to the bk?

[dingdong]

My cousin filed BK last year, the lease and the remaining balance were discharged in her BK, you may have to ammend your petition to include the lease provider as a creditor to be protected. Did you list the lease in Sched G, Executory Contracts?

[StartingOver08]

It looks like the lease is terminated in CH 7....

provided you put the lease in your petition, it looks like the lease is automatically terminated in a CH 7. But read these details below (there is more detail in the link):

Upon filing the petition (the original bankruptcy filing), the Code requires the debtor or the trustee in Chapter 7 cases to timely perform all obligations of the lease from that date until the lease is assumed or rejected. If the debtor or trustee fails in that duty, the landlord may seek relief from the automatic stay and proceed with its remedies, which include an action for possession of the premises. In many Chapter 7 cases this Code provision is overlooked if the trustee rejects the lease or the lease is automatically rejected under the time specified in the Code.

In a Chapter 7 case, the Code provides that a lease of residential real property is automatically rejected if the trustee does not assume or reject the lease within 60 days after the bankruptcy is filed. Thus, even if the debtor has not defaulted under the lease before filing bankruptcy--the Code does not recognize defaults that are breaches of covenants relating to either insolvency, financial condition, the filing of a bankruptcy proceeding, or the appointment of a trustee or custodian in the case of real property leases --60 days after bankruptcy the landlord can consider the lease rejected.

If the lease is rejected, the lease automatically is deemed to have been breached as of the day before the bankruptcy filing and the landlord is entitled to repossess the premises in accordance with state law. As a result, any damages that the landlord might suffer are treated as pre-petition general unsecured claims. The code limits "rejection damages" to either 15 percent of the balance of the rent reserved in the lease or the rent reserved for one year from the filing date or the date the premises were surrendered, whichever is earlier. In addition, the claim can include any pre-petition rent due at the time of the filing.

As a result of the 60-day time period, a landlord knows with certainty when they can treat the lease as rejected and begin to repossess the leased premises. If it is necessary, a landlord can file a motion to compel the assumption or rejection of a lease before the end of the 60-day time period. Such a motion generally can be heard by the court within 30 days, but can be heard on an expedited basis if there is a pressing need for a ruling (e.g. new tenant).

With bankruptcy court permission, the 60-day time period can be extended. This occurs infrequently and generally only when the trustee, in exercising his business judgment, believes the lease can be assumed and assigned for value. Assuming and assigning a lease is addressed below. However, assuming and assigning a lease only makes business sense if the lease is a below-market lease and proceeds result from the assignment, which proceeds can be used to pay unsecured creditors in the bankruptcy.

In a Chapter 13 bankruptcy the landlord must be more vigilant because the debtor may assume or reject an unexpired lease of residential property at any time before the confirmation of a Chapter 13 plan. The court, however, at the request of a party to the lease, may order another specified period of time to assume or reject. Debtors often put off assuming or rejecting a lease until the Chapter 13 plan confirmation. The date for confirmation of a debtor's plan varies from court to court. In jurisdictions where the scheduled confirmation date is far off, it is prudent for the landlord to request an earlier deadline, especially where the debtor is unable to timely make post-petition payments.

A landlord should closely scrutinize the Chapter 13 plan because it will likely affect the landlord's rights. Assumption of the lease is something that would usually be included in the Plan. An assumed lease becomes a debtor's post-petition obligation, making any claim from a subsequent default an expense of administration in the Chapter 13 proceeding. That claim then becomes a high priority in the distribution of funds in the event the Chapter 13 case is converted to Chapter 7.

Assuming a lease requires the debtor to prove various elements. In order to assume a lease a debtor must provide adequate assurances that it (or another tenant, if it intends to sublease) will promptly cure any defaults, compensate the landlord for any financial loss resulting from a default and provide adequate assurance of future performance.

The requirement of adequate assurance protects the landlord if the debtor wants to either assume the lease, or assume and assign it. The requirements provide defenses for the landlord against the attempted assumption. If the debtor cannot provide evidence that it can meet these requirements, then the lease cannot be assumed.

An obvious indicator of the debtor's ability to provide adequate assurance is whether the debtor can cure the defaults by immediate payment of all past due rent and expenses incurred by the landlord. Debtors who cannot immediately cure, may propose to cure defaults by paying pre-bankruptcy rent as a general unsecured claim. Their inability to pay in full may be used as a defense by an objecting landlord.

But a landlord whose lease is being assumed should object to any treatment of his cure claim as a general unsecured claim. The Code requires a prompt cure when the cure cannot be immediate. Many courts construe this to mean the debtor is allowed a reasonable period of time to cure the defaults. In these instances, a landlord should request that his cure claim and his future rent claim be separately classified above all other creditors and that the cure occur over as short a time as possible. A landlord should further request that the Chapter 13 trustee institute a wage attachment so that the monthly default amount and current rent is forwarded to the trustee and never reaches the debtor's hands. This generally satisfies the assurance of future performance, although a wage attachment will not apply in the case of self-employed individuals.

The strategy a landlord employs when a residential tenant files bankruptcy varies depending upon which Chapter the case is filed under and the facts of each case. Chapter 13 cases tend to present a landlord with more issues because the debtor will often want to assume the lease. It is advisable that a landlord consult with an experienced bankruptcy attorney before taking any action with respect to a bankrupt tenant.

Contrary to common belief, things can happen quickly in a bankruptcy case. When the landlord learns of the bankruptcy of its tenant, it must act promptly to protect its rights as landlord. Sitting on those rights may prejudice the landlord forever.

See the entire article here: http://www.bernsteinlaw.com/publications/tenant_res.htm

[blankslate]

Thank you, that is A LOT of great information!!!

I'm hoping the situation just won't arise. I had told her when I was looking to rent here that I was under some bad circumstances and would be filing for bk. She asked for a small additional deposit and that was it. She really has been a fantastic landlord and is a very understanding person. I'm just preparing myself for the worst just in case.

[dingdong]

If you, or she does something to mitigate her loss for the remainder of the lease ( get a new renter) you are off the hook for the balance.

So if you know you are moving in April, start advertising a couple months before on Craigslist or similar and see if you can get someone to take over the remaining couple of months on the lease.

Maybe someone will need a temporary situation or just want to start a lease in April. If she gets a renter in, you do not have to be liable for the remaining balance of the lease.

I bleieve it is California law, I know the courts do not awards damages if the loss is mitigated by getting a new renter.

[blankslate]

I know she advertises on craigslist so she would probably find my ad on there ;) I was just given March 1st. as my move date by my company so I'm going to have to put in notice at the end of this month. I have been fostering her rescue dogs for several months now so we have a good relationship. We had a conversation a couple of weeks ago about the dog I'm currently fostering for her and I told her he's such a sweetheart if I had a bigger space I would keep him and she said "Well let's work on getting you a bigger space!" I do plan on doing a major deep clean of the unit before I hand the keys back. It's easy enough, small one bedroom with tile floors so no carpet to clean. I feel guilty even having to ask these questions but as I said, I need to be prepared for the worst.

[dingdong]

I meant kind of advertise for her, just as a good faith effort to get someone in. I am sure if she had a renter in place to take over your lease, she would be fine. SHe would probably be happy that you are giving her notice and trying to help. Also, when you place an ad on CL, you don't have to use an address, just use the autoresponder and then screen from there. She wouldn't know it was you. You could at least get a few apps to her that way, so she knows you are trying to help her out

[silva]

If the debtor or trustee fails in that duty, the landlord may seek relief from the automatic stay and proceed with its remedies, which include an action for possession of the premises. In many Chapter 7 cases this Code provision is overlooked if the trustee rejects the lease or the lease is automatically rejected under the time specified in the Code.

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