Bankruptcy is a double-edged sword. On one hand, it relieves you of responsibility for debts you're unable to pay. On the other hand, it's likely to complicate your life for years to come. Your credit score will suffer and lenders may be reluctant to enter into a contract with you. Although it may be difficult for you to qualify for a mortgage for a while, bankruptcy typically doesn't stop you from renting again after your discharge. It won't be quite as easy to find a willing landlord as it was before, but you don't necessarily have to give up your home when you file.
The Automatic Stay
As soon as you file for bankruptcy, an automatic stay goes into effect. If you're behind with your rent on your current apartment when you file, there's not much your landlord can do about it, at least not immediately. He can't evict you. If he's begun eviction proceedings, he must pause the process for 30 days. You have 60 days from the date of your bankruptcy filing to decide whether you want to stay in your rental or walk away from it. If you decide you want to keep your rental even though your landlord began eviction proceedings before you filed for bankruptcy, you must file an objection to stop the court from allowing your landlord to move ahead with the eviction after his 30-day stay expires. You must also make your current rent payments on time during this period.
Rejecting the Lease
If you decide that you don't want to keep your rental, you have the option of rejecting the lease as part of your bankruptcy proceedings. If you give up the apartment and move out, any further obligation to your landlord is discharged as part of your Chapter 7 proceedings. If you don't make a decision before the 60 days expires, you'll lose the chance. This automatically rejects your lease; you can't continue renting there and must move.
Assuming the Lease
Assuming your lease means you want to stay put. You can continue to reside in the dwelling, and no one can force you to move. To exercise this option, you must immediately pay any past due rent you owe and be able to demonstrate to the court that you'll be able to continue making your rental payments going forward. Unless your landlord consents to a change in the terms of your lease, it would continue on as before.
If you file for Chapter 13 bankruptcy instead of Chapter 7, this involves entering into a three or five year repayment plan to satisfy your debts. Each month, you'll give your disposable income to your bankruptcy trustee, after you've met your necessary living expenses, and the trustee will give this money to your creditors. You still have the option of rejecting or assuming your lease in a Chapter 13 bankruptcy, up until the time your repayment plan is confirmed or approved by the court. You must also state in your proposed repayment plan that you want to reject the lease or continue with it. Your ongoing rental payments would be part of your necessary living expenses. If you owe past due rent, you can include this as an unsecured creditor claim in your bankruptcy plan, paying it off over three or five years.
- Bernstein-Burkley: When a Residential Tenant Files Bankruptcy
- Cooper, White & Cooper: Rules of Thumb for Landlords Facing a Tenant's Bankruptcy
- Skiba Law Group: Bankruptcy and Your Residential Lease
- JCS Law: Top 50 Bankruptcy Questions
- United States Courts: Chapter 13 – Individual Debt Adjustment
- Allmand Law: Can I Include My Past Due Rent in the Bankruptcy?
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