Rejection of Contracts and Unexpired Leases

Many people have leases or contracts when they file for bankruptcy. Some common leases or contracts we see in our office are:  

  • Residential leases 

  • Car leases 

  • Appliance or furniture lease to own contracts 

  • Time-share contracts 

  • Contracts for sale of real estate 

  • Gym Memberships

  • Cellphone providers

  • Security systems

Those leases or contracts will all be listed in your bankruptcy petition and state what you plan to do with them. There are a few options on how to deal with your unexpired contracts after filing for bankruptcy. You can reject the contract entirely, you can assume the contract and request the trustee pay it through your Chapter 13 plan, or you can assume the contract and continue paying outside the bankruptcy.

Chapter 7 Bankruptcy and Contracts

In a Chapter 7 case you can list your intent to assume the contract.  You need to continue to make payments and you should be able to continue with the contract as long as you were not behind at the start of the bankruptcy case.  In some instances with cellphone contracts the creditor will immediately issue you a new contract after your bankruptcy or let you go month to month so you can continue your service.   

Chapter 13 Bankruptcy and Contracts

In Chapter 13 most leases are rejected unless you affirmatively indicate you want to them in your Chapter 13 plan. Say you are in a Chapter 13 and wish to reject a contract. You can give back the property securing the debt and not owe anything. A typical example is surrendering a car you are upside down on.  Unfortunately you cannot treat it like a secured car loan and cram down the amount owed to the value of the vehicle. The second option is to have the trustee use part of your monthly plan payment to pay down the car lease throughout your case. The last option is to pay the lease directly and outside the bankruptcy and you continue to make payments as before you filed.

Contracts and Leases in Bankruptcy- Practically Speaking

As a practical matter many creditors with leases just continue to do business with you as if no bankruptcy is filed as long as you wish to do so.  It is important to understand that the power of the bankruptcy to cancel a lease or contract gives you greater options if you need to get out of an agreement that is either burdensome or unfair.  If you are renting an place to live in and you discover the landlord is difficult to deal with and the maintenance is never done you might want to get out of the lease.  If you move just before filing you can break the rest of the lease and discharge what was owed.  

There are countless times when this power of the bankruptcy court can come up.  As always, one of our attorneys will sit down with you and go over each outstanding contract or lease you are a party to and what your options are. There are specific bankruptcy rules governing different types of contracts that can be very complex. If you are interested in learning how bankruptcy might affect your leases and contracts, contact our office for a consultation.  We have bankruptcy offices in Overland Park, Lawrence, Topeka, and Wichita.

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