In most cases you can continue car and residence leases unchanged during Chapter 7 banruptcy.
If you are struggling with overwhelming debt from credit cards, medical bills, payday loans, utility bills, etc., Chapter 7 bankruptcy may be an excellent option. Using this type of bankruptcy, qualifying individuals can eliminate their unsecured debts (like credit cards) and choose whether to reaffirm or redeem secured debts (like a car loan or mortgage).
Because many individuals who qualify for Chapter 7 bankruptcy do not own their home or vehicle, one question that often comes up is how these lease contracts will be treated during the bankruptcy proceeding.
Car and Property Leases Rarely Terminated
When you file, you may choose whether to assume (continue) or terminate your car lease or residential rental agreement. However, be aware that you do not have the final say in the matter. The bankruptcy trustee assigned to oversee your case has the authority to terminate any kind of lease contract that they decide is unjustifiably taking value from your bankruptcy estate. In practice, car and property leases are rarely terminated by the bankruptcy trustee. After all, they have nothing to gain by putting you out on the street or taking away a vehicle you need to earn income.
Chapter 7 Bankruptcy Cannot Delay an Eviction in Progress
Unfortunately, some individuals used to file for bankruptcy in an attempt to avoid being evicted. Following 2005’s Bankruptcy Abuse Prevention and Consumer Protection Act, this is much more difficult. If your landlord has already won a judgment against you granting them the right to take possession of the property, your lease contract is essentially terminated and will not be included in the bankruptcy. This means it is not protected by the automatic stay and your landlord can continue with eviction proceedings without permission from the bankruptcy court. However, you may still be able to convince the landlord to stop the proceeding at this point if you pay the back rent and pay future rent in advance.
Chapter 7 Bankruptcy and the Automatic Stay
One of the benefits of filing for bankruptcy is that once your petition is accepted, the automatic stay begins. During this period, your creditors cannot take any action against you without special permission from the bankruptcy court. This includes your landlord. However, what your landlord can do is petition for a lifting of the automatic stay to allow them to initiate an eviction. This may occur if your eviction is based on non-payment of rent. If your eviction is based on an accusation of endangering the property or using illegal drugs on the property, the landlord actually does not have to get a petition approved, but can simply file a certification with the bankruptcy court. If you do not file an objection in 15 days, the eviction will proceed.
Bottom Line
If your lease agreements are affordable and you are in compliance with all the provisions of the agreement, in most cases both the bankruptcy trustee and the creditor or landlord will be happy to let you continue the contract during your Chapter 7 bankruptcy.
If you have any questions, please consult a Chapter 7 bankruptcy attorney for advice before filing.
