What If You Are Owed Money on an Unfinished Contract or Lease?
You’re struggling to make ends meet and can see no way forward other than through a Chapter 7 bankruptcy petition. You may have some contracts or leaseholds that provide monthly income, though not enough to resolve your financial challenges. What happens to those leases and contracts when you seek to discharge your debts through Chapter 7 bankruptcy?
The Special Treatment of Leases and Contracts in a Chapter 7 Bankruptcy Filing
A Chapter 7 bankruptcy filing will not automatically terminate any contractual arrangements you have, including lease agreements. Instead, the trustee handling your case will typically review any such agreements and make an initial determination as to whether they are beneficial to the bankruptcy estate. In other words, in the trustee’s judgment, will honoring the contracts and leases provide more money to the bankruptcy estate, which can then be used to pay your creditors? The trustee may accordingly choose to assume the contractual obligation or terminate it.
Once you have filed your Chapter 7 bankruptcy petition, the trustee has 60 days (up to 120 days for a non-residential lease) to make a decision about an unfulfilled contract or lease. The trustee may actually take over your position with respect to the contract or lease and collect regular revenues. In most instances, though, the trustee will seek to sell the legal obligation to a third party, so that funds can immediately go into the bankruptcy estate.
To assume the legal obligation, the trustee must obtain the approval of the bankruptcy court by filing the appropriate motion. However, should the trustee opt not to assume the contract, no action is required.
The same rules apply to leases or contracts where the debtor is making rather than receiving payments. If the trustee deems that keeping and selling the lease/contract will generate more income for the bankruptcy estate, it may be assumed. If not, it will typically lapse. A debtor can, however, assume the obligations of a lease by providing notice to the creditor, provided the creditor agrees to the assumption.
Contact an Experienced Rockwall, TX Bankruptcy Attorney
Learn more about the reasons for reaffirming a debt in bankruptcy. At the Law Offices of Carrie Weir, all potential clients are entitled to a free initial consultation. To arrange an appointment, contact my office online or call 972-772-3083. I handle Texas personal bankruptcy filings in Kaufman County, Rockwall County, Collin County, Dallas County, Hunt County and the surrounding counties.
