What’s That in My Lease…A Bankruptcy Clause? - Westgate Law

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What’s That in My Lease…A Bankruptcy Clause?

Would you ever consider signing a lease with a “no bankruptcy clause?” Does it help for me to tell you that doing so will not put you in danger should you reach the point where you need to file? I do have to say that any lessor who includes this in their lease is somewhat “questionable”. Payday loan lenders, hard money lenders, and other small business lenders will frequently include such a clause, but it has no actual legal implications.

Dishonest debt collectors quite often try to collect through harassment a debt that has actually been discharged through bankruptcy. Criminal organizations buy bad debts, including some that have been discharged through a bankruptcy.

Almost all debts qualify to be discharged through bankruptcy. If there were such a contract that caused you to sign away your right to file, then most assuredly every contract would have that clause included. Bankruptcy would no longer exist to ease the burden of the debtor.

Debts that are incurred through fraud, government penalties or criminal restitution cannot be included in your list of creditors to be discharged when filing for bankruptcy. A student loan is usually included in this list of debts, but student loans can sometimes be discharged (ask an experienced bankruptcy attorney for details on when this is possible).

If you are presented with a lease with a “bankruptcy clause” from a potential landlord it is likely that they won’t lease to you without a signature on the agreement. However, you are not contractually obligated by any means or prevented from filing for bankruptcy should the need arise in the future. Anyone has the legal right to eliminate an outstanding lease balance by filing for bankruptcy. It is very important to note that if you do end up filing for bankruptcy to get rid of the back lease payments, you must move out immediately. The landlord will definitely have the right to collect lease payments as long as you are on the property. Any rents coming due after the filing date will be your responsibility and will not be discharged by the bankruptcy.

To discuss the topic of the bankruptcy clause further or to ask any other bankruptcy related questions, please get in touch with the experienced southern California bankruptcy attorneys at Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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