Bankruptcy And Landlord Tenant Leases
In many cases—especially with the COVID-19 pandemic creating financial hardship for everyone—bankruptcy may be an answer to problems related to paying rent. Whether you are a landlord or a tenant, knowing how bankruptcy interacts with landlord-tenant relationships can help you decide if bankruptcy is right for you.
The Landlord and the Automatic Stay
A landlord is a creditor, like any other creditor, such as a credit card company, mortgage company or car loan. Even if the landlord isn’t owed money, and the consumer is current with rent, the landlord is still a potential creditor and must be listed on the bankruptcy schedules.
That means that when the bankruptcy is filed, the automatic stay immediately comes into effect. The stay immediately stops any and all collection activities. For landlords and tenants, that means that any effort to collect unpaid, back owed rent, or any attempt to evict, is immediately stopped.
Note that the automatic stay will also stop any eviction lawsuit in its tracks. However, the stay does not prevent a landlord who has already obtained a judgment of eviction from going forward with the eviction. This is why tenants who fear eviction shouldn’t wait until the last minute to file a bankruptcy. The options after the eviction judgment is entered are limited, whereas before the judgment, there are solutions.
Rent After Bankruptcy
Despite the automatic stay, the tenant normally must keep paying the rent. That’s good news for the landlords. The good news for tenants is that they only have to pay the normal monthly rent going forward—they do not have to pay the back owed rent to remain in the apartment (for now).
For tenants current on their rent, it is “business as usual”; you pay your rent, the landlord collects it and all goes on like normal. For tenants afraid of retribution, be aware that it is illegal for a landlord to punish you for filing bankruptcy. So you should have no concern about being evicted just because you filed for bankruptcy if you’re otherwise current with the rent.
For tenants who are behind on the rent, landlords can seek to have you evicted—but they would have to do so through the bankruptcy court. Many times, to avoid the time and cost of federal bankruptcy court litigation over eviction, landlords will either opt to work something out with you, or at least will wait until the expiration of the automatic stay to take any further action against you.
Some tenants are behind on their lease, and just want to walk away and live somewhere else. For those tenants, the good news is that you have that option in bankruptcy. When you opt to walk away, you will have to leave the property, but you will do so owing no money to the landlord. For the landlord, that is money lost, but at least the property is now (or will soon be) vacant to re-rent without the cost and expense of an eviction action.
Tenants also have the right to assign the lease, even if the lease agreement prohibits assignment. The landlord can require anybody taking over the lease be financially viable, and meet the same financial criteria that the tenant had to meet when he or she originally rented.
Worried about your rent or eviction? Bankruptcy may be able to help you. Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961.