Leases in Chapter 7 Bankruptcy: Assumption, Rejection, and the Stay

When you file Chapter 7 bankruptcy, your leases don’t automatically end. Every unexpired lease you hold as tenant or lessee, whether for an apartment, a car, office space, or equipment, becomes property of the bankruptcy estate, and a court-appointed trustee decides whether to assume it (keep it in force) or reject it (treat it as breached). That decision turns on whether the lease has value for your creditors, and it runs on strict deadlines that differ depending on what the lease covers.¹

Your Lease the Moment You File

The petition transfers control, not ownership of possession. Every legal interest you have, including your rights under an unexpired lease, passes into the estate.¹ You keep occupying the space or driving the car in most cases, but the trustee, not you, now decides the lease’s fate. Until that decision, the lease sits in limbo.

How Long the Trustee Has to Decide

The Bankruptcy Code gives the trustee authority to assume or reject any unexpired lease with court approval, and the clock depends on the type of property.²

Residential and Personal Property Leases

For leases of residential real property or personal property, the trustee has 60 days after the order for relief. If the trustee does nothing in that window, the lease is deemed rejected by operation of law. No hearing, no written notice required. The court can extend the 60 days for cause, but only if the trustee asks before the deadline passes.²

Commercial (Nonresidential) Real Property Leases

Commercial leases run on a longer timeline. The trustee must assume or reject a nonresidential real property lease by the earlier of 120 days after the order for relief or the date a plan is confirmed. Miss it and the lease is deemed rejected, and the trustee must immediately surrender the property to the landlord.²

The court can grant one 90-day extension for cause, and only if the motion is filed before the initial 120 days expire. After that single extension, any further time requires the landlord’s written consent, every time. Commercial landlords have real leverage once the first extension runs out.

During the waiting period, the trustee has to keep paying rent and performing the debtor’s other obligations under the lease from the filing date until the lease is assumed or rejected.² The estate doesn’t get to occupy a commercial space rent-free while it thinks.

What Rejection Means

Rejection is the more common outcome in Chapter 7. Legally, the code treats a rejected lease as if you breached it immediately before the filing date.² That timing fiction turns the landlord’s damages into a pre-petition, general unsecured claim rather than a priority administrative expense. The landlord has to file a proof of claim to receive anything from the estate.

Once the lease is rejected, you have to surrender the property promptly. Your right to possess it through the estate is gone, and the landlord can pursue possession under nonbankruptcy law.

The Cap on the Landlord’s Claim

A landlord can’t claim the full remaining value of a broken real property lease. The code caps damages from a terminated lease at the rent for the greater of one year or 15 percent of the remaining term, never more than three years’ worth, plus any unpaid rent already due on the filing date.³ Even the capped amount is unsecured, so it usually gets paid in pennies on the dollar, if at all.

Rent Between Filing and Rejection

Rent that accrues after you file but before the lease is rejected is treated differently. If the estate actually used or occupied the property in that stretch, the landlord can seek that rent as an administrative expense, which is paid ahead of general unsecured claims.⁴ This matters when the trustee takes weeks to reject a lease the estate is still using.

What It Takes to Assume a Lease

Assumption is the exception in Chapter 7, and it comes with conditions. A trustee cannot assume a lease that’s in default without first meeting three requirements.⁶

Cure the default. All past-due rent, late fees, and related charges have to be paid, or the trustee has to provide adequate assurance of a prompt cure.

Compensate the landlord for any actual financial loss the default caused.

Provide adequate assurance of future performance. Courts look at income statements, bank records, or a co-signer’s backing.

Certain non-monetary defaults on real property leases don’t have to be cured if a retroactive cure is genuinely impossible. If a lease required specific operating hours and the tenant missed them before filing, the trustee can’t undo that history, but does have to perform those obligations going forward after assumption. Penalty provisions tied to non-monetary defaults don’t need to be cured either.5Office of the Law Revision Counsel. 11 USC 365 – Executory Contracts and Unexpired Leases

You can ask the trustee to assume a lease on your behalf, and if the court approves, the lease continues as though you never filed and you remain bound by its terms. But when the trustee views the lease as a liability to creditors rather than an asset, don’t expect cooperation. Trustees usually assume a lease only when they can assign it. A below-market commercial lease is worth money, and the code lets the trustee assign an assumed lease even when the lease itself prohibits assignment, provided there’s adequate assurance the new tenant can perform.² The landlord can’t block assignment just because they’d prefer a different tenant.

Keeping a Leased Car or Other Personal Property

Leased personal property has its own procedure. As an individual Chapter 7 debtor, you have to file a Statement of Intent telling the court and creditors what you plan to do with each leased asset. It’s due within 30 days of filing or by the date of the meeting of creditors, whichever is earlier. You then have 30 days after the first date set for the meeting of creditors to actually follow through.⁷

Miss either deadline and the automatic stay lifts as to that property, which is no longer part of the estate. The lessor can repossess without needing court permission.⁸

If the trustee rejects or doesn’t timely assume your personal property lease, you still have a separate path to keep it. Notify the lessor in writing that you want to assume the lease. The lessor can agree and may require you to cure any outstanding defaults on the original contract terms. If you confirm in writing within 30 days of the lessor’s response that you’re assuming the lease, the obligation becomes yours personally rather than the estate’s.²

This isn’t the same as reaffirmation, which applies to secured debts like car loans and needs court approval. Assumption under this provision doesn’t require court approval, but the practical effect is similar: you’re personally on the hook for the lease going forward, and your discharge won’t wipe out those future obligations.

Evictions and the Automatic Stay

Filing Chapter 7 triggers an automatic stay that halts most collection actions, including eviction. The stay has exceptions your landlord can use.

Expired lease. If a nonresidential lease expired by its own terms before or during the case, the stay doesn’t stop the landlord from recovering the property.⁸
Pre-petition eviction judgment. If your landlord already obtained a judgment for possession before you filed, the eviction can proceed despite the stay. You can temporarily block it by filing a certification with your petition stating that applicable law allows you to cure the monetary default, and by depositing with the court any rent coming due in the next 30 days. You then have 30 days to fully cure the default and file a second certification.⁸
Property endangerment or illegal drug use. A landlord can pursue eviction during your case by filing a certification under penalty of perjury alleging endangerment of the property or use of controlled substances on it. You can object, and the court will hold a hearing.⁸

The pre-petition judgment exception is the one that catches people off guard. Filing bankruptcy the day before an eviction hearing might buy time. Filing the day after a judgment is entered gives you very little protection unless you can produce the full amount owed within 30 days.

One Boundary: Intellectual Property Licenses

If you’re the licensor of intellectual property and the trustee rejects that license, the other side isn’t simply cut off. The licensee can elect to retain its rights under the license for the remaining term, including any exclusivity, as those rights existed immediately before you filed.² The licensee gives up the right to demand specific performance of other contract terms but keeps the license itself. It’s a narrow rule, but worth knowing if your case involves IP rather than only real estate or equipment.

1
Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
2
Office of the Law Revision Counsel. 11 USC 365 – Executory Contracts and Unexpired Leases
3
Office of the Law Revision Counsel. 11 USC 502 – Allowance of Claims or Interests
4
Office of the Law Revision Counsel. 11 USC 503 – Allowance of Administrative Expenses
5
6
Office of the Law Revision Counsel.
11 USC 365 – Executory Contracts and Unexpired Leases
- Cure the default. All past-due rent, late fees, and related charges have to be paid, or the trustee has to provide adequate assurance of a prompt cure.
- Compensate the landlord for any actual financial loss the default caused.
- Provide adequate assurance of future performance. Courts look at income statements, bank records, or a co-signer’s backing.
Certain non-monetary defaults on real property leases don’t have to be cured if a retroactive cure is genuinely impossible. If a lease required specific operating hours and the tenant missed them before filing, the trustee can’t undo that history, but does have to perform those obligations going forward after assumption. Penalty provisions tied to non-monetary defaults don’t need to be cured either.
5Office of the Law Revision Counsel. 11 USC 365 – Executory Contracts and Unexpired Leases
7
Office of the Law Revision Counsel. 11 USC 521 – Debtor’s Duties
8
Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay