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Rejected Residential Lease Was Not Terminated In Bankruptcy

This dispute arose in the bankruptcy court when the debtors defaulted on the terms of their prepetition lease, which was terminated as a result of it being deemed rejected.
These Chapter 7 debtors filed for bankruptcy 10 days after signing an apartment lease. They did not schedule the landlord as a creditor. They did not disclose the lease on Schedule G. Pursuant to Section 365, the lease was deemed rejected 60 days postpetition because the trustee did not assume or reject it. Two months after the debtors received their discharge, the debtors stopped paying their rent. The landlord sued the debtors, obtaining a judgment for $8,929 for past due rent. The debtors asked for reconsideration on the basis that any rent obligation was discharged in their Chapter 7 bankruptcy.

The court was not persuaded by the debtors' arguments. The court ruled that the landlord's rent claim was not a claim for damages resulting from termination of the lease agreement upon rejection. The deemed rejection of the lease resulted in a prepetition breach under section 365(g)(1). However, the court reasoned that a breach of a lease does not result in the termination of a lease. If the parties treat the lease as remaining in effect, then the lease continues in force. "If there is a future breach of the lease, the resulting claim does not arise from the rejection of the lease but from the tenant's subsequent default, and the lease is than subject to enforcement under applicable law," the court said.

If you are a landlord attempting to evict a tenant who has filed for bankruptcy or a tenant who needs to file bankruptcy we can help. The Law Offices of James V. Sansone assists individuals with landlord tenant disputes, including evictions, and file for bankruptcy protection under the United States Bankruptcy Code. We are located in Santa Rosa, California and serve clients throughout Sonoma County, Mendocino County, and Lake County, including Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, and Kelseyville.

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