If you are currently locked into a long commercial lease but are facing financial difficulties, you may be worried about filing for bankruptcy. Don’t worry! There are options available for you and your business. Also, what will happen will depend on the type of business you own and under which chapter of bankruptcy you file.
How Does Business Bankruptcy Work?
Deciding under which chapter of bankruptcy to file should be discussed in detail with a qualified bankruptcy attorney. Your attorney will be able to go over which options will work best for you and your business. You will either choose a restructuring plan or decide to liquidate the company. Together with your attorney, you will submit a plan to the court that outlines how your business will recover and repay some or all of its debts.
Most commercial tenants that file for bankruptcy will choose a Chapter 11 bankruptcy. Under Chapter 11, the business is considered an entity (partnership, corporation or an LLC). When the business is owned and operated by an individual or couple, a Chapter 13 bankruptcy can be filed. There are specific limits that cannot be exceeded to qualify for this chapter.
Chapter 7 is considered a liquidation case. When filed, the bankruptcy trustee will sell nonexempt assets to repay creditors and will assess the value of the lease. The trustee will deal directly with your landlord.
Are There Affects on Your Lease?
You need to go over the terms of your lease in detail. Chances are that unless you have a clause detailing that your lease will be terminated with the close of your business, you will be responsible for the lease. However, you should have answers to the following questions:
Do you want to stay on the lease?
The course of action to take will also depend on the chapter of bankruptcy you file and the status of your lease. If your lease has expired, then your landlord can petition the court for a relief from automatic stay and evict you. Or, you can enter into a new lease with new terms.
Chapter 11 or 13: When your lease is current and you want to remain on the lease, you will need to be sure to continue paying rent and any other associated payments. You will also need to provide your landlord with assurances that you will remain current. The bankruptcy court will need to approve that you will assume the lease within 60 days of your case filing.
Chapter 7: The bankruptcy trustee typically will not want to continue running the business for long. The trustee can file a motion to provide the landlord an opportunity for a hearing if the lease has value. The lease can be given to a new party in exchange for payments from your bankruptcy estate. This new tenant must provide proof to show that they will be able to responsibly assume the lease within 60 days after the bankruptcy filing. Any objections by the landlord will be heard by the bankruptcy court.
Was your lease in default when you filed BK?
Chapter 11 or 13: Is the lease in default? If you file for bankruptcy and you wish to keep the lease, you will need to cure the default, make all necessary payments, and provide proof that you will continue to meet your lease obligations. The bankruptcy court will need to approve that you continue with the lease within 60 days of your bankruptcy filing date.
Chapter 7: Since a Chapter 7 bankruptcy is a liquidation case, the lease is not retained. You will either surrender the property or allow the trustee to look into the value of the lease first. While the investigation period is under way, the trustee will pay your landlord for the time that the property is not surrendered after the bankruptcy is filed.
What if You Want to End Your Commercial Lease?
Maybe you are ending your business and do not want to continue your lease. Your options will depend on the type of lease you have.
Long-term lease: If you are locked into a long-term lease, you are responsible for any rent payments due until your lease ends. If you do not uphold the lease, you run the risk of being sued. Your landlord may also be able to look for a new tenant depending on your state’s laws. Be sure to speak with your attorney about your wishes to end your lease.
Month-to-month: Again, you will need to provide your landlord with a written notice. This notice will explain that you wish to end your tenancy. You need to provide at least 30 days notice. However, some commercial landlords require 60 or 90 days notice. Be sure to review your lease agreement to be sure.
Want More Information?
At the Law Office of Daniela Romero, we believe in relationships that are based on trust. Before we work together, we would like to get to know you and we would like you to get to know us. We want you to be sure you are the right fit for us and that we are the perfect fit for you. This will allow you to be completely comfortable sharing intimate and difficult details of your case, so we can offer you representation to the fullest extent of the law. Call us today to set up a free consultation.