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How is a commercial lease handled in your bankruptcy case?

If your Salem business is drowning in debt, a Chapter 11 bankruptcy may be your ticket to continuing your operations without the threat of legal action from your creditors. However, if you do choose to stay in business, one important decision may need to be made: how to handle the lease on your current business location.  

The guidelines regarding the treatment of a commercial lease in a Chapter 11 case can be found in Section 365, Subchapter IV of Chapter 3 of Title 11 of the U.S. Bankruptcy code. It states that, with the permission of your bankruptcy trustee, you can either choose to “assume” or “reject” your current lease agreement. If you choose to assume the lease, you can continue operating on the premises provided that you are able to fulfill certain requirements. Chief among these is “curing,” or repaying any outstanding rent to your landlord from both before and after your bankruptcy filing date. Next is to provide assurances that you have the means to meet the terms of your lease even as you work your way through your bankruptcy case.

If you choose to reject the lease, you are released from the terms of the lease and are free to vacate the premises. Any arrears owed on the lease, as well as damages for terminating the lease agreement, will then become another claim in your bankruptcy case. You have 120 days from the date that the order of relief is issued in your case to either assume or reject your lease. After that, it is automatically considered to be rejected. If you need more time to decide, you can petition the court for a 90-day extension. Any extensions given after that must be done with the permission of your lessor.  

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