6 Steps to Assuming a Defaulted Lease in a Chapter 13 Bankruptcy
Sometimes, when people file Las Vegas bankruptcies in Chapter 13, they have a lease that they’ve defaulted on. If the term of the lease hasn’t expired, then the petitioner might be able to assume the lease, that is, resume payments and maintain access to whatever they’re leasing. In most circumstances this is an apartment or a car. The Chapter 13 payment plan allows petitioners to assume defaulted leases, and the bankruptcy code elaborates on these rules in § 365. Here are the steps involved.
(1) The bankruptcy code doesn’t allow debtors to simply resume payment on the defaulted lease as though nothing has happened. They must either cure the default or at least convince courts that they will “promptly” cure the default.
(2) If they can cure the default then and there, they must only convince the court that they will be able to make the future payments. More on that later.
(3) If they can’t cure the default immediately, debtors will have to convince the court that they will cure it. In practice, this usually means structuring the Chapter 13 payment plan to include extra payments to the lessor (the party debtors are leasing property from) over a period of time to cover the default. Once the extra payments are concluded, the default is cured.
(4) Unfortunately, lessors will sometimes challenge a debtor’s repayment plan as not “promptly” curing the default as defined in the bankruptcy code. Some courts allow shorter or longer periods.
(5) Even if the bankruptcy court finds the plan acceptable, petitioners must convince it that they will be able to make future payments.
The problem is that sometimes the “cure period” the court allows will be shorter than the amount of time it takes to have the overall plan confirmed, which will prevent the petitioner from assuming the lease at all. If this happens, petitioners can either file a motion for an interim distribution to allow the Trustee to pay the lessor before the plan is confirmed. Courts have a lot of leeway in determining what is “prompt,” and since we’re usually talking about important things like apartments or cars, these types of plans rarely run into difficulties.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-903-1459 to set up your free consultation.