Under section 365(g), rejection of an unexpired lease is treated as breach of the lease contract not termination of the lease. Therefore, the lessor’s claim against the debtors for rent based on post-petition, post-rejection occupancy of the leased property was part of the pre-petition breach and was discharged in the debtors’ chapter 7 bankruptcy. In re Roberson, No. 17-8041 (B.A.P. 6th Cir. May 30, 2019) (unpublished).
Joi and Anthony Roberson defaulted on their lease midway through their lease term. When the lessor, GCB Properties III, Ltd., initiated eviction proceedings, they filed for chapter 7 bankruptcy listing the defaulted rent as one of their debts. Neither the trustee nor the Robersons assumed the unexpired lease and the Robersons received their discharge. During the pendency of their bankruptcy case, GCB continued to try to evict them and the Robersons obtained a judgment against GCB for violation of the automatic stay. After discharge, GCB attempted to collect the rent for the months the Robersons lived in the property from the date of the statutory rejection of the lease through the date the Robersons moved out of the property. Furthermore, GCB applied the judgment against it as set-off against unpaid rent. The bankruptcy court found that the rental default up through the time the Robersons vacated the property was discharged in their bankruptcy and therefore the lessor was not entitled to set-off. Read More
