Landlord Resources / What Happens When My Tenant Files for Bankruptcy?
Bankruptcy is when an individual or corporation finds itself unable to pays their bills and files in the courts for relief from their debts. Bankruptcy was originally designed to assist creditors in recovering all or part of the debt owed, but instead has become a debtor’s tool in dismissing their remaining debt.
The law allows a debtor who files for bankruptcy to remain in a rental property without paying rent. This is because the filing allows for a stay of all actions against the debtor, therefore allowing the tenant to remain in the unit.
Bankruptcy restricts the ability of Landlords to use normal regulatory procedures they would typically use when evicting a tenant. However, the property owner should pursue remedies provided to the creditors by state laws, possible eviction, liens, etc.
When a Landlord is notified that a tenant has filed for bankruptcy, they must stop making any attempt to collect any payment of rent or monies owed directly from the tenant. Instead, the property owner must direct any inquiries to the trustee or the debtor’s attorney or submitted to the court as a claim.
It is important that the landlord know which type of bankruptcy the tenant is filing for. In a liquidation or also known as a Chapter 7, the trustee has sixty days from the date of filing the petition to either assume or reject the lease. In a reorganization, also known as a chapter 13, the debtor has until confirmation of a plan to either assume or reject a lease within that plan. If the trustee or debtor assumes the lease, they are required to bring any monies current.
Bankruptcy is extremely complex and be quite costly for a landlord who finds himself faced with this dilemma. If you have questions or are involved with a tenant who has filed, seek the expert advice of an attorney.