One of my Chapter 7 bankruptcy clients rented a house under a one year lease. The lease expires at the end of August, 2011. The client filed bankruptcy in April, 2011. The client stayed in the house and paid rent for May, June, and July. He intends to vacate the house in August at the end of the lease. The client asked me whether the landlord can sue him for money damages if he does not pay the August rent.
Lease debts have their own set of rules in bankruptcy. After a debtor files Chapter 7 bankruptcy the bankruptcy trustee has 60 days to reject or accept any lease to which the debtor is a party. In most cases the trustee will not opt to accept, or reaffirm, the debtor’s leases because most leases have no value to the trustee. A trustee might accept a lease which includes a below market lease payment if the trustee believes someone may pay for the assignment of the lease.
Assuming the trustee does not accept a lease within 60 days from the filing date, the debtor has the option to assume a lease provided that the debtor cures defaults. In this case, my client did not indicate his intention to assume the residential lease.
The client is concerned that the rent due August 1 is a debt incurred post-filing and therefore is not dischargeable in his bankruptcy. The debtor’s entire lease obligation through the end of the lease in August, 2011, as a pre-petition dischargeable debt. Even though rent under the lease is payable monthly the debtor incurred the debt for all twelve monthly payments before he filed bankruptcy in April, 2011.
The tenant was a short term tenant after filing bankruptcy. After the trustee’s rejection the landlord could have evicted the debtor any time as the lease was no longer in effect. Instead, the landlord accepted the debtor’s monthly rents and his occupancy. Once the debtor does not pay the rent due on August 1, 2011, the landlord may begin eviction proceedings in state court without having to get relief from the bankruptcy stay, but the debtor has no further personal liability for August rent under this lease executed prior to the filing date.