Sometimes a personal bankruptcy is precipitated by a lawsuit for back rent and/or an eviction proceeding. A bankruptcy may also be needed if an ejectment action is brought against a debtor after a foreclosure and sale has been consummated. In Arkansas, the manager of World Gym has filed a personal bankruptcy that appears to have been precipitated by a suit against him for $475,000 in late rent.
The Chapter 7 bankruptcy was filed in the Bankruptcy Court for the Western District of Arkansas at Fayetteville. By operation of law, the filing of the federal petition stops further action from taking place in the state lawsuit for back rent. Whenever a bankruptcy is filed and docketed, the Bankruptcy Court issues an immediate order called the automatic stay.
The automatic stay stops creditors from going forward on any pending proceedings or collection activities. Creditors can get relief from the automatic stay by filing with the court, but such relief is only granted under certain narrow and specified circumstances. In the foregoing case, the debtor lists three different properties that are the subject of the late rent lawsuit.
The World Gym reportedly closed its doors at two of the three facilities listed. It appears that the debtor may be alleged to owe the debt personally even though the rental agreements appear to be with corporate entities. The Chapter 7 will serve to quickly and permanently extinguish any personal debt that the filer may have on property that he is giving up or has vacated. That would include a personal rent obligation or a promissory note promising to pay the debt.
If the Arkansas business owner who has filed the Chapter 7 personal bankruptcy has credit card debt and personal hospital bills, they can be extinguished. Likewise, debt on any other unsecured claims can be discharged. If the debtor is behind on real estate payments or car payments, he may give up the property and eliminate all remaining debt that is owed. If he is current on his car or house payments, he may keep them and continue to make the payments during and after the bankruptcy.
Source: 5newsonline.com, "World Gym Manager Files For Bankruptcy", Curt Lanning, April 2, 2015