by Max Gunderson
We recently had a client come in to our Tucson, Arizona bankruptcy office to set the wheels in motion to file a Chapter 7 bankruptcy. Our client currently lives in a rented apartment in the Tucson area but would like to find a more affordable place to live.
Our client’s lease on his apartment runs through the end of the year and he needs to file bankruptcy before then. The concern that the client has is that he might not be able to get a new lease on a place after filing for bankruptcy. It is always good to plan ahead, our client wanted our advice on his situation.
Would the Chapter 7 bankruptcy that he is filing make getting a new lease impossible?
A good point to always keep in mind is that the months immediately following a bankruptcy filing are a time when a client’s credit is the most damaged. Credit scores are usually at their lowest immediately following a Chapter 7 or Chapter 13 bankruptcy filing. We let our client know that it is very possible that he would have a difficult time finding a landlord who would lease him an apartment right after declaring bankruptcy.
A better option for our client, instead of filing for bankruptcy and then attempting to secure a new place to live, would be for our client to sign a new lease on a different apartment prior to filing bankruptcy and then reject his current lease in the Chapter 7 bankruptcy filing.
The Arizona bankruptcy law considers our client’s current lease on his apartment to be an “executory contract,” meaning that our client still has on-going obligations to perform under the contract of his apartment lease. In our client’s case, he has the contractual obligation to pay the lease on his apartment. That being said, the Arizona bankruptcy law gives our client the option to either “assume” or “reject” any executory contract that he may have.
Other common examples of executory contracts that he may have include: (but are not limited to) gym memberships, cell phone contracts, and vehicles leases. If our client decides to reject any of his executory contracts, his obligations are terminated. If he decides to assume any of the contracts, he remains obligated under the terms of the contract.
In our client’s case if he rejects his old apartment lease, the law deems the lease contract as breached as of the day before his Chapter 7 bankruptcy filing. The Tucson landlord is entitled to repossess the apartment in accordance with Arizona state law. Any damages that the landlord might suffer are treated as pre-petition general unsecured claims. Fortunately our client can include any outstanding rent in his bankruptcy petition and he will be able to wipe out the debt along with his other unsecured debt. Including any unsecured claim that his landlord may have against him.
Our Tucson bankruptcy client took our advice and he has already signed a new lease on a more affordable place to live. Our client will be rejecting his current lease in his Chapter 7 bankruptcy filing. Our client’s Chapter 7 bankruptcy filing will also wipe away any and all future rent owed and penalties incurred for not fulfilling the lease’s terms. What our client is doing is smart as he is planning for his bankruptcy and his financial future. He is avoiding a potential problem down the road by attaining a different place to live prior to filing for bankruptcy protection.
If find yourself in a similar situation or if you would like to have a FREE Debt Evaluation to determine what is the best option for your financial situation. Do not hesitate to call our office and set up an appointment to meet with one of our trusted Arizona bankruptcy lawyers. Your initial consultation is FREE and we will happily meet with you in one of our area offices or, if you choose, we can do a FREE consultation by phone. Get started now! Contact us.