Business and Bankruptcy: What Happens to My Lease?

Most business owners rely greatly on their commercial property to host company operations, sell their goods and socialize with their clientele. The property could be the face of the business, similar to the largest corporations like McDonald’s and Target.

However, there is a huge fear of losing that property during a bankruptcy filing. No one wants to risk losing their lease in order to sort out their finances. But there is a way to do both while securing your property.

The benefits of chapter 11

Under Chapter 11 bankruptcy, companies restructure and reorganize their entire financial process, including any leases under the business’s name. Depending on the circumstances, there are several options for addressing your lease:

  • Work with your landlord to determine a new payment plan
  • Assume your lease, which means repaying all past-due balances
  • Reject your lease, which means leaving your lease and finding a new property

You may wonder how to reject your lease with a contract in place. Luckily, chapter 11 participants do not have to face the breaching penalties of the leasing agreement if they have multiple unprofitable locations.

Your best strategy is to work with the landlord before assuming or rejecting the lease to maintain the property and still pay off your remaining debts. It allows you to avoid finding a new space and re-establishing your business in a new area.

Chapter 11 also offers multiple benefits for business owners who are struggling with debt, so it’s best to consult with your business team (other partners or owners) and decide if bankruptcy is the right approach for your debts.