One of the common reasons that people come in to see me is to deal with a business that they can no longer sustain. Oftentimes, they have taken on credit card debt or unsecured loans to help them pay business expenses because the business isn’t pulling in enough income to do so. For those businesses that are brick and mortar based, commercial leases are an additional problem that have to be addressed.
Commercial leases for most small businesses, especially those that are just starting, usually include a personal guarantee. If the business stops making rent payments, the landlord can pursue the business owner for those payments, escalating things as far as a lawsuit.
Fortunately, bankruptcy can get rid of most debts (with student loans, taxes, domestic support ,i.e. child support or spousal maintenance, and court fines being exceptions). So commercial leases are a debt that you can eliminate and not pay anything else to the landlord, at least in most circumstances.
Whether or not a landlord may be able to recover lost rent if you file bankruptcy depends on a variety of factors.
If the business owner is eligible to file chapter 7 bankruptcy, the entire lease will be eliminated, and the owners will not have to pay anything to the bankruptcy court unless they have non-exempt (unprotected) assets.
If the business owner has to file a chapter 13, the landlord may be able to get at least a portion of their remaining rent.
Section 502 (a)(6)(A) allows the landlord to file a claim for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of the lease.
How much the business owner will have to pay will be determined by the business owner’s non-exempt assets and disposable income. What assets are non-exempt and what your disposable income is can only be determined after a thorough review of your financial situation.
Since filing bankruptcy doesn’t require a person to have a lawyer to represent them during the process, I am usually reluctant to tell people that they should hire a lawyer. In this circumstance, I would have to strongly recommend hiring a lawyer to navigate the bankruptcy process. There are too many potential landmines.
If you have questions about whether or not bankruptcy can help you recover after you’ve closed your business, I hope you’ll come in for a free, no-obligation consultation. I’m an experienced bankruptcy attorney who has helped hundreds of clients navigate the bankruptcy process and gotten them on their journey to financial recovery.
If you’d like to make an appointment, you can schedule a consultation by going here.
I look forward to helping you.