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Can you end your commercial lease after filing for bankruptcy?

On Behalf of | Sep 29, 2021 | Business Bankruptcy

When your business has higher operating expenses than revenue, you may eventually have to make a difficult decision. Filing for bankruptcy can be an opportunity to reorganize the business or restructure your debt. It could also help protect you from future creditor claims if you decide to close the company.

You will need to carefully consider your financial obligations and assets when planning for a business bankruptcy. One of your biggest expenses will likely be the commercial lease for the facilities where you operate your business. What happens to your commercial lease when you file for bankruptcy? Does the obligation to pay your lease end with your filing?

Business bankruptcy forces you to make a decision about the lease

Filing for bankruptcy entitles you to an automatic stay that temporarily stops collection activity. Your landlord can’t sue you or evict you after you file. You can potentially renegotiate your debts in a Chapter 11 filing. Those hoping to close their business will likely file for Chapter 7 bankruptcy, which involves the liquidation of company assets.

Whichever form of bankruptcy you file, you will need to make a decision about your lease. You can potentially terminate the lease after you file for bankruptcy. Your landlord may agree to this, especially if they want a new tenant paying rent as soon as possible. You might be able to assign your lease to someone else who wants the space. You could also potentially resume the lease. There is no automatic termination of your lease because it is an executory contract.

Knowing your big-picture plan can help you handle your lease

Only you know what the best outcome of your bankruptcy filing might be. Do you hope to put the financial obligations from your business behind you and start fresh? In that case, terminating the lease or assigning it to someone else might be the right approach.

If you hope to stay in business, then renegotiating the lease and finding a way to pay any back-due rent might be the best option. Bankruptcy can give you an opportunity to rework your business budget and renegotiate your biggest monthly obligations. Focusing on your long-term goals can help you make the most of a business bankruptcy filing.