Can You Use Bankruptcy to Get Out of a Lease?
For many individuals and businesses, monthly leases make up a large fraction of their expenses. Real estate in South Florida is expensive, and many of our clients cannot continue to pay their rent. Many want to know: “Can you use a bankruptcy to get out of a lease?”
The answer is “yes.” However, individuals and businesses should meet with a South Florida bankruptcy lawyer to review all options.
Thousands of Businesses Are Breaking Leases
Bloomberg reports that many retailers are filing for Chapter 11 bankruptcy protection so that they can break their long-term, expensive leases. This allows them to save considerable sums of money as they shutter underperforming stores.
If you have a business, then getting out of a lease might be one of the reasons you file for bankruptcy protection. Although some landlords might be willing to renegotiate the terms of the lease—they don’t want to lose a customer, after all—it might be faster and cheaper to simply declare bankruptcy and walk away.
One result of businesses breaking their leases—many commercial landlords are themselves feeling financial strain. Indeed, Bloomberg reports that CBL & Associates, a giant owner of over 100 shopping malls, is prepared to file for bankruptcy protection. There could be more of these filings in the offing. Around 25,000 stores are expected to close before the end of 2020, mostly because of the pandemic, and many landlords cannot survive the loss of too many tenants.
Of course, a business does not need to reject a lease, even if it is financially struggling. Maybe you like the location and want to stay there. If so, then you could request abatement of rent and other modifications without resorting to bankruptcy. The threat of a bankruptcy filing is often enough to get a landlord to the table, especially in these troubled times. This definitely gives a business tenant the upper hand in negotiations.
Individuals Can Reject Leases, Too
It’s not only businesses that can use bankruptcy filing to their advantage. If you have a lease that is beyond what you can afford, then rejecting it in bankruptcy makes sense. You will have to list any unexpired lease on your bankruptcy schedules so that the court and trustee know about it.
There is even better news: if you owe your landlord lease payments, you can also eliminate those in bankruptcy since they are a form of unsecured debt. This allows you to walk away, free and clear. Any collection action will also be halted for the duration of your bankruptcy proceeding.
However, if you choose to assume the lease—that is, continue on with it—you are responsible for making all payments going forward. We encourage clients not to continue a lease unless they are confident that it fits within their new budget.
Let’s Discuss Your Lease
Nowack & Olson, PLLC is a leading bankruptcy law firm in South Florida. If you would like to discuss filing for bankruptcy, please contact our Plantation bankruptcy lawyers today. We offer a free consultation.