If you're a renter when you file bankruptcy, you may be able to stay in your rental during and after your bankruptcy case. But this can be difficult if you file Chapter 7 and you owe a lot of past-due rent. In Chapter 7, you'll probably have to get current with your rent within 30 days of filing your bankruptcy case. And you need to keep paying your rent as it comes due while your case is pending. Chapter 13 allows you to pay your past-due rent over 3-5 years, but you'll want to consider your whole financial picture before you take this route.
Written by Curtis Lee, JD.
Updated July 20, 2023
If you’re a renter who’s considering filing bankruptcy to get a fresh start, you may be worried about how your bankruptcy case will impact your rental agreement. Many renters also wonder if they can stay in their home during and after their case and what happens to past-due rent in bankruptcy. This article will address all these concerns and help you understand your options as a renter during the bankruptcy process. You can use this knowledge to decide what your next steps are and whether bankruptcy is right for you.
Decide if You Want To Keep Your Lease Before You File Bankruptcy
If you file bankruptcy while you're renting a home or apartment, you’ll need to decide whether you want to keep your lease or walk away from it. If you’re behind on your rent and have no hope of catching up, you can choose to walk away from the lease. This is called “rejecting” or “not assuming” the lease.
If you reject your lease in bankruptcy, you don’t have to continue paying rent. And when you get your bankruptcy discharge, any past-due rent you owe from before the bankruptcy filing is wiped out, too. The downside to rejecting the lease is that you’ll have to move out of the rental and find a new place to live.
Many people who file bankruptcy don’t want to move out of their rental property. If you decide to stay, keep in mind that if you’re behind on rent payments, staying won’t be easy. You’ll more than likely need to become current with your rent, usually within 30 days. For most people filing bankruptcy, this is difficult to do. After all, if you had enough cash to pay several months’ worth of rent, you might not be filing bankruptcy.
The exact process for accepting or rejecting your lease depends on which chapter of bankruptcy you file. Chapter 7 and 13 bankruptcies take slightly different approaches to residential leases. But both usually give the filer the option to assume (keep) or reject (walk away from) the lease.
Keeping Your Lease in Chapter 7 Bankruptcy
If you’re filing bankruptcy and you want to keep your residential lease, you need to make those intentions known early in the bankruptcy process. If you file for Chapter 7 bankruptcy, you’ll declare this intention to assume the lease on a form called the Statement of Intentions. You’ll also need to list the lessor’s name (your landlord) and the type of lease.
Technically, the bankruptcy trustee gets to decide whether to continue your residential lease or reject it. But in the vast majority of Chapter 7 bankruptcies, the trustee will reject it because it won’t generate any money that can pay off creditors.
If the trustee rejects the lease, you can then decide to assume it so you can stay in your rental. In other words, the trustee gets to first decide whether to accept or reject a lease. But because most trustees will reject it, it’ll ultimately be the filer who gets to decide whether to keep a lease or not.
Keeping Your Lease in Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows filers to catch up on past-due debts through a repayment plan. So if you’re behind on rent and you know you need time to catch up, you may want to consider Chapter 13 instead of Chapter 7 to stay in your rental.
Chapter 13 is similar to a Chapter 7 bankruptcy in that the bankruptcy trustee gets to decide whether to assume or reject your residential lease. But as is the case with most Chapter 7 bankruptcies, the Chapter 13 trustee will likely reject the lease as it’s something that will take money away from the bankruptcy estate, not add to it.
No matter which chapter of bankruptcy you decide to file or where you stand on past rent payments, if you decide to keep your lease and continue living at the rental property, you need to continue paying rent after you file bankruptcy. Even if you owe your landlord for several months of back rent and that will be discharged during bankruptcy, you still need to make rent payments that become due after you file bankruptcy.
Remember, the bankruptcy discharge only applies to past debts. Debts you take on after you file bankruptcy aren’t eligible for discharge.
Keeping Your Lease if You’re Current With Your Rent
If you file bankruptcy and you’ve been making all of your rent payments, things are fairly straightforward whether you file Chapter 7 or Chapter 13 bankruptcy. You’ll put your landlord’s contact information on your Schedule G form. Then as long as you keep up with your rent payments, the bankruptcy shouldn’t affect your residential lease.
Do You Need To Tell Your Landlord About Your Bankruptcy?
As a general rule, you don’t have to notify your landlord of your bankruptcy filing. But the bankruptcy court will let your landlord know about it when it sends out Official Form 309. This document lets creditors and interested parties know about the bankruptcy.
Depending on your relationship with your landlord, it might be a good idea to give them a heads up when you file bankruptcy. This could make it easier for them to know what to expect later on in the bankruptcy process. It may also make it easier to negotiate with them if you have any late payments or need a little help making future rent payments.
If you’re not behind on rent, your landlord most likely won’t care that you filed bankruptcy. But when your bankruptcy is over, you can take advantage of the goodwill you created by asking if they’ll report your on-time rent payments to the major credit reporting bureaus. This will help rebuild your credit score and improve your credit history.
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What if Your Landlord Is Trying To Evict You?
Things can get complicated if your landlord is trying to evict you. In an eviction lawsuit, a landlord asks a court to order the tenant to leave the rental property because they breached the lease. Your options for dealing with the eviction will depend on whether the landlord has gotten court judgment. If a landlord wins an eviction judgment against you, you’ll have to move out and you may also be ordered to pay unpaid rent.
Filing Bankruptcy Before Your Landlord Has a Judgment for Eviction
The automatic stay is a major benefit of filing bankruptcy. It goes into effect as soon as you file bankruptcy, and it stops all debt collection activities, including eviction actions. But the automatic stay is temporary, and what happens next depends on the status of your rent payments and which type of bankruptcy you file.
If you file for Chapter 13 bankruptcy, you can only continue staying in the rental property (even with an automatic stay) if…
You include any unpaid rent as part of your repayment plan,
You stay current with your ongoing rent payments, and
Your landlord doesn’t object. They likely won’t, as they want to continue receiving rent payments from you.
In a Chapter 7 bankruptcy, it’s more difficult to continue living at your rental property. In addition to continuing to make regular rent payments, you’ll need to be in a state that allows tenants to catch up on missed rent payments. Assuming you’re in one of these few states, you’ll have 30 days to come up with the entire unpaid rent amount.
If you’re not in one of these states, you might still have a chance to keep your lease and pay back your past rent. But your landlord must agree to this. Assuming you’re an otherwise good tenant, they may agree to let you stay and pay back your past-due rent, especially if you can do it with a lump sum. That’s because if they don’t agree and you have to move out, any past-due rent you owe them could get discharged by the bankruptcy court, and they’ll get nothing.
It’s also important to understand that the automatic stay can sometimes be lifted. Residential leases don’t usually add money to the bankruptcy estate or help creditors. They often do the opposite by taking money that could be used to repay creditors and diverting it to paying rent. So if a landlord files a motion to lift the automatic stay so they can continue with the eviction process, the bankruptcy judge will more than likely grant the motion.
Filing Bankruptcy After Your Landlord Has a Judgment for Eviction
If your landlord already has an evictionjudgment against you before you file bankruptcy, it’s hard to stop the eviction. One possible option is to file a certification with the bankruptcy court. There you’ll list any defense you have to the eviction that’s recognized by state law (eviction actions take place in state court and apply state law). Even if you have a valid defense, you’ll also need to show you have all the money to pay any unpaid rent within 30 days of filing your bankruptcy case.
If this applies to you, you may want to consider having a free consultation with a bankruptcy attorney to discuss your options.
Renewing a Residential Lease After Bankruptcy
When you apply to live at a rental property, many landlords will run a credit check before as part of the rental application. Some landlords will also run a credit report for current tenants who want to renew an existing lease agreement. In either situation, it’s possible for a landlord to see your bankruptcy filing in your credit history and refuse to offer you a new lease or renew an existing one.
If your landlord is a property management company or business, they may have strict policies about tenants who filed for bankruptcy. But individual landlords or property owners might be more willing to look past your bankruptcy. This is especially true if you can show a potential landlord that you have a good rental history and a steady employment history. It may also help to explain what led to the bankruptcy and how you’ve addressed it. You may have to pay a bigger security deposit when entering into a new lease with a new landlord.
If you file bankruptcy but want to continue your residential lease, you have several options. No matter which path you take, you’ll have to continue paying your rent during the bankruptcy process. And if you have any past-due rent, you’ll have to pay that back, too. The only question is how much time you’ll have to do so.
Thanks to the automatic stay, filing bankruptcy will temporarily stop eviction proceedings against you. This can give you a little bit of time to figure out what you want to do next and come up with any unpaid rent. If your landlord already has an eviction judgment against you, you’ll face an uphill battle to avoid having to move out. But that doesn’t mean it’s impossible.
To better understand your options, it might be a good idea to talk to a bankruptcy lawyer. They can give you some basic legal advice and explain what your next step should be.