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Do Landlords Have Bankruptcy Rights?

Do Landlords Have Bankruptcy Rights?

Landlords can experience many trials throughout their rental career. While ruptured water pipes to flooded basements are inconvenient, when a tenant stops making payments, a landlord is faced with potentially evicting the renters to reclaim their property.

However, what happens when a tenant files for bankruptcy during the occupancy of the property?

When a resident files bankruptcy most landlords can experience a sense of panic and fall into the misconception that they will never get paid, but that may not be true depending on the tenant’s situation. If the tenant is up-to-date on his or her monthly payments, the tenant may wish to maintain the lease and pay the monthly rent while moving through the bankruptcy process.

There are several types of bankruptcy the tenant can file for, but most people will pursue either Chapter 7 or Chapter 13:

  • Chapter 7 – Liquidation Bankruptcy – Chapter 7 is the most common type of bankruptcy that is often used to handle excessive credit card debt, medical bills, and other unsecured debts.
  • Chapter 13 – Repayment Bankruptcy – Chapter 13 is often used when someone is facing a foreclosure on his or her home and he or she needs an opportunity to get back on track through monthly payments. Chapter 13 bankruptcy allows a person to reorganize their debt and make payments to creditors, usually over a 3-5-year period.

When a person files for bankruptcy, an automatic stay is put in place. An automatic stay stops almost all creditors from taking an action to enforce a debt or eviction, including landlords. This means that after a tenant files for bankruptcy, the landlord cannot bring any legal action against the tenant.

Additionally, the tenant has the power to reject the lease or stop making payments when bankruptcy is filed. This applies to both commercial and residential leases. If this occurs, you will need to bring an action against them in the Bankruptcy Court to terminate the “automatic stay” and enforce your rights to take back the property. If you already received a judgment for eviction prior to the bankruptcy, the process may be much quicker for you.

If someone that owes you money files bankruptcy, the first thing you should do is stop any action you have taken against that individual, including a lawsuit, writ of execution, or sending demand letters. Depending on the debt you are owed and if it is secured, you may have an opportunity to collect the secured assets. You will also have an opportunity to file a claim in the individual’s bankruptcy case.

While bankruptcy is frustrating for all creditors, landlords who know the rules can protect themselves better than other creditors when dealing with tenants. At Nikolaus & Hohenadel, LLP, we have the expertise of having represented both debtors and creditors, so we understand the advantages of each side and can help you through this process. We represent both commercial and residential landlords in a variety of bankruptcy cases. With five convenient locations and a stellar reputation, let Nikolaus & Hohenadel, LLP help you navigate the waters of your tenant’s bankruptcy. Click here to contact us!