Your business is filing bankruptcy and you have an active copier lease. The immediate question: does the bankruptcy eliminate your copier lease obligation, or are you still on the hook for $18,000 in remaining payments?
The answer depends on which chapter you file under and whether you choose to assume or reject the lease. Here is what happens in each scenario.
Chapter 7: Liquidation Bankruptcy
In Chapter 7, the business ceases operations and a trustee liquidates assets to pay creditors. Your copier lease is an “executory contract,” meaning both parties still have obligations (you pay, they let you use the equipment).
The trustee will either assume the lease (if the equipment has value to the estate) or reject it. In practice, copier leases are almost always rejected in Chapter 7 because the trustee has no use for a copier in a business that is shutting down. Rejection means the lease is terminated and the leasing company becomes an unsecured creditor for any remaining balance.
The personal guarantee complicates this. If you personally guaranteed the lease, the bankruptcy of your business entity does not discharge your personal obligation. The leasing company can still pursue you individually unless you also file personal bankruptcy.
Chapter 11: Reorganization Bankruptcy
Chapter 11 lets the business continue operating while restructuring debts. You have a choice: assume the lease and continue making payments, or reject it and return the equipment.
If the copier is essential to your operations, assuming the lease makes sense. You must cure any payment defaults and provide adequate assurance that you can make future payments. The lease terms remain the same.
If the copier is not essential or the lease is above market rate, rejection may be the better option. The leasing company files a claim for damages (typically the remaining lease balance minus the equipment’s value), and that claim is treated as an unsecured debt in your reorganization plan, often paid at pennies on the dollar.
Chapter 13: Individual Reorganization
If you are a sole proprietor, Chapter 13 allows you to reorganize personal and business debts. The copier lease can be included in your repayment plan. You may be able to reduce the total amount owed if the lease is significantly above the equipment’s current value (a “cramdown”), though this is complex and requires legal expertise.
The 120-Day Decision Window
Under the Bankruptcy Code, you have 120 days from the filing date to decide whether to assume or reject an unexpired lease of personal property (which includes copier leases). This deadline can be extended by the court, but if you miss it, the lease is deemed rejected automatically.
Use this window strategically. If you are reorganizing, evaluate whether the lease terms are favorable compared to current market rates. If you can get a better deal on a new copier, reject the old lease and negotiate a new one as part of your restructured operations.
What Most Guides Miss: The Automatic Stay Protects You Immediately
The moment you file bankruptcy, an automatic stay goes into effect. This immediately stops the leasing company from repossessing the copier, sending the debt to collections, reporting the delinquency to credit bureaus, or filing a lawsuit against you for the lease balance.
This breathing room is valuable. Use it to evaluate your options, negotiate with the leasing company, and make a strategic decision about the lease rather than reacting to collection pressure. The leasing company can petition the court to lift the stay, but this takes time and gives you additional negotiating leverage.
Bankruptcy and copier leases involve complex intersections of contract law and bankruptcy code. Consult a bankruptcy attorney before making any decisions about assuming or rejecting your lease. For more on personal guarantees in copier leases, see our fine print guide, and understand your exit options at our guide to getting out of a copier lease.
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