Bankruptcy and Tenants
A bankruptcy by the landlord should not affect tenants living in a rental apartment, home or building unless the property is foreclosed during the bankruptcy. Even then changes may be minor, with most state laws allowing renters to remain in their homes until their leases expire. A tenant filing for bankruptcy generally cannot be evicted while his bankruptcy case is being reviewed by a federal court. This means that some renters who have fallen behind on their rent payments are allowed to continue living rent-free for a while until the issues are resolved in court.
Other People Are Reading
-
Federal Law
-
The Protecting Tenants at Foreclosure Act, a federal law, protects tenants living in a rental property that is being foreclosed through bankruptcy. The law allows people to remain in their apartments or rental homes until the lease expires as long as they have been paying the rent on time. A person with a month-to-month lease must be given a 90-day notice that his lease is being terminated.
Ownership Change
-
Some landlords lose their properties during bankruptcy as they sell off assets to pay debt or surrender property to lenders. This happens often in Chapter 7 bankruptcy, which is considered a "straight liquidation" and is completed in just months. A bank could take over an entire apartment complex or foreclose on several rental homes owned by a small investor. Usually the bank hires a management company to supervise the property until a permanent owner is found. The management company steps in and by law must continue honoring leases.
-
Shady Practices
-
Not all management companies are reputable. CNN reports that some real estate agents or management representatives try to bully tenants into leaving immediately after the rental property changes hands. Federal law and some state laws expressly forbid this, and you should seek legal advice if you are being forced out. For example, Massachusetts Poverty Law Advocates, a nonprofit legal aid organization, says you don't have to immediately leave your rental home in Massachusetts following foreclosure no matter what a real estate agent or property management representative says. Your state may have a similar law in addition to the federal guidelines.
The Automatic Stay
-
Tenants filing for bankruptcy are protected by a special provision in bankruptcy called "the automatic stay." The automatic stay is a legal injunction signed by a federal judge that stops evictions. It also stops all other debt collection and is one of the most powerful features of bankruptcy. With the automatic stay in place the landlord cannot force you to leave the property. Usually the landlord will challenge your bankruptcy in court, arguing though a legal motion that you are filing the bankruptcy simply to avoid paying rent. The judge could side with the landlord. In this case, he can allow the eviction to take place, can give you some time to move or can order you to make payment arrangements with the landlord.
-
