Housing is a major concern in bankruptcy, and frequently, the focus is on foreclosure and how bankruptcy protects you from losing your home.
But what if you rent?
How does bankruptcy affect renting and what if you’ve fallen behind in your rent and you’re concerned about eviction?
In most cases, you won’t be evicted if you are just a month behind on your rent. Some landlords even allow you to stay in your home if you’re a few months behind. Some of this is based on communication with the landlord, while other times there is a specific policy in place – usually the case when you’re renting from a larger company.
For the sake of explanation, we’ll assume you’ve fallen behind on your rent and you’re dealing with at least a few other debts that are behind. You’ve reached the point where you’re considering bankruptcy, but you’re unsure what will happen to your rent debt if you file. And you’re also wondering if you can be evicted if you file.
Here’s what you need to know:
Chapter 7 and Rental Debt
As a renter, you might be more likely to file for Chapter 7 than Chapter 13 because you’re not trying to protect an asset. This isn’t always the case – there are plenty of renters with high-value assets – but since most people’s greatest asset is their home, renting makes it less likely you’ll need to file for Chapter 13.
In Chapter 7 bankruptcy, the trustee liquidates your assets and uses the proceeds to pay your creditors. If you’ve accumulated rental debt, the money collected by the trustee could be used to pay past due rental payments. And if there is no money or the trustee has prioritized your debt in such a way that there’s nothing left for past due rent, that debt can be discharged.
However, this doesn’t mean you’ll be current on your lease and able to continue living in your rental.
Instead, the trustee, not your landlord, assumes the lease, and decides what happens next. You might be given a window of time to repay the rent in arrears. Then, as long as you continue to make rent payments on time, your bankruptcy’s automatic stay will protect you from eviction.
Your trustee also has the option of rejecting the lease, which means you aren’t obligated to continue rent payments. Past due rent is discharged in the bankruptcy, but you’re at risk for being evicted. Your landlord has the option of filing for a Motion of Relief to evict you, and the automatic stay will not protect you from this legal action.
Chapter 13 and Bankruptcy
If you decide Chapter 13 is the better option for you, you’ll be given two options regarding your living arrangements and past due rent. You can remain in the lease and repay rental payments in arrears in your repayment plan or you can reject the lease and move out of the rental.
Keep in mind, if you choose to remain in the lease, you’ll need to pay past due rent, and continue to keep payments current. Otherwise, your landlord will have the option of petitioning the court for relief from the automatic stay, which will allow eviction actions to move forward.
To learn more about what “arrears” means and how it applies to debt, check out this page from Investopedia.com.
What You Can Do If You’re Being Threatened with Eviction
Filing for bankruptcy could protect you from eviction, even if eviction proceedings have already begun. However, timing plays an important role and the court has the option of ruling the lease terminated and forcing you to move.
If you’re nearing eviction, but there’s no final order issued yet, the automatic stay of bankruptcy could protect you.
It’s important to keep in mind that, like bankruptcy, eviction is a legal process. Your landlord cannot just decide to evict you and toss you out on the street on a whim. He or she must go to court and get permission to evict you, which gives you some time to act.
If you’re concerned about eviction or you’ve been threatened with an eviction notice, bankruptcy might help. For more information or to discuss your situation, contact the Law Offices of Robert M. Geller at 813.254.5696 to schedule a free consultation.