It is important to understand the laws governing bankruptcy and lease agreements when considering filing from bankruptcy.
When entering into a commercial lease some lessors will attempt to include clauses that are not supported by law. Specifically, lessors may include clauses prohibiting bankruptcy during the term of the lease agreement. It is not legal even if it is fairly common. This illegal practice seems to be the most common amongst certain types of lenders: payday loan lenders, hard moneylenders, etc.
Let’s make this very simple: If you could sign away your right to file for bankruptcy and discharge your debt…don’t you think that clause would be included in EVERY credit agreement you ever sign? Simply petting something in legalese and making someone sign it does make it true or binding.
There are very few debts that can’t be eliminated by bankruptcy. Even student loans can be eliminated through bankruptcy in certain situations. Debts that will not be eliminated by filing for bankruptcy include: fraud, criminal restitution, government penalties, child support, etc.
What should you do if you are presented with a lease with a “no bankruptcy” clause? Are there lease agreements prohibiting bankruptcy filing?
Don’t attempt to argue the point with the landlord since such an argument will likely result in the prospective landlord choosing to lease to a different tenant that will sign the lease with the “no bankruptcy” clause included. It would be better to simply sign the lease with the “no bankruptcy” clause and still file bankruptcy if you are unable to continue making the payment. If you do file for bankruptcy, it would be best to move out of the property immediately. Do not file for bankruptcy simply to stay and not pay for the months after filing your petition. This action would mean that the landlord at hand would have the right to any rents that come due after your bankruptcy filing date before you vacate the premises.
Bankruptcy is a protection for you, but it’s not designed to provide anyone with squatters’ rights. If you have questions about filing for bankruptcy contact the southern California bankruptcy experts at Westgate Law.