What to Do When a Tenant Files Bankruptcy?
As a landlord, you must deal with all sorts of tenants. Despite having a screening process in
place, you cannot rule out the possibility of problematic tenants occupying a few of your
accommodation units. You can bear with late payments but what do you do when one of your
tenants files for bankruptcy? Do you just sit quietly or is there a way to convince the tenant to
pay their dues? Let’s find out.
The bankruptcy filed by an individual can be frustrating for all of his creditors. As a landlord, you
are also affected by a tenant who files for bankruptcy. However, it is possible for a landlord to
protect his rights with the help of his lease terms and by being vigilant to the procedures of the
bankruptcy case of his tenant.
There are two chapters under which bankruptcy is filed
As a landlord, you have the right to start eviction procedures if your tenant stops paying the
rent. But what do you do when he files for a bankruptcy? Bankruptcy can be filed under
Chapter 7 or Chapter 13. Bankruptcy under Chapter 7 is straight bankruptcy where the court
allows the individual to dismiss his debts. Under Chapter 13 bankruptcy, also called
reorganization, debtor gets time to make payments to his creditors slowly and gradually.
Tenant must pay the rent even after filing for bankruptcy
Once your tenant files for bankruptcy, they get an automatic stay from the court against
creditor actions meant to recover their dues. This means you cannot ask for payments and you
cannot obtain repossession of your home. If your tenant stays in your premises after filing for
bankruptcy, he is required by the court to pay post petition rent to you. He must keep these
payments current for as long as he stays in your property post-bankruptcy.
You may have a clause in the lease that says that the agreement becomes null and void if the
tenant files for bankruptcy. However, law forbids you from evicting your tenant if he has filed
for bankruptcy. The good news for you as a landlord is that bankruptcy doesn’t allow your
tenant to stop paying rent. In fact, you can also collect your past dues from the tenant once
priority claims and secured loans are paid through auction of assets of your tenant. You can file
a motion asking for a relief against the stay order against eviction if your tenant stops to pay
the rent after bankruptcy..