Full question:
If you are in a triple net lease and the same LLC is in both the landlord and tenant entities, can the tenant entity file for bankruptcy, if it cannot pay rent?
- Category: Bankruptcy
- Date:
- State: California
Answer:
Assuming all other qualifications are met, it is possible for a debtor to file bankruptcy even thouh a related entity is a creditor. It is possible that a right of setoff may apply. Setoff is governed by section 553 of the Bankruptcy Code which provides:
"Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such a creditor against the debtor that arose before the commencement of the case . . ."
Debts are mutual when they are owed to and from the same entity and in the same capacity. To establish a valid right to setoff under section 553 of the Bankruptcy Code, the party must prove:
(i) a debt owed to the debtor which arose before the commencement of the bankruptcy case;
(ii) a claim against the debtor which arose before the commencement of the bankruptcy case; and
(iii) that the debt and claim are mutual obligations.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
