Leaving My Rental after Filing Chapter 7 Bankruptcy
Chapter 7 bankruptcy gives you serious advantages for getting out of a residential lease—advantages in money, time, and peace of mind.
Getting Out During Bankruptcy
Your financial problems may be unrelated to your rental home or apartment. You may be reasonably happy with where you are and be current on your obligations there.
On the other hand your rental place may be a big part of your problems. It may be too expensive, and/or leave you stuck with a long lease term you wish you could break. You may have gotten a new job and need to move closer to it. You may be behind on your rent and wish you could just move and not have to pay the arrearage. Your landlord may have already started an eviction proceeding.
Whether you were or weren’t considering it, bankruptcy gives you a great opportunity to get out of your lease. Think about whether it might be advantageous once you’re filing bankruptcy regardless of your prior intentions about it.
Today’s blog post covers how Chapter 7 “straight bankruptcy” helps you leave your rental. The next post gets into how Chapter 13 “adjustment of debts” can do so.
Advantage—Buys You Immediate Time
Your landlord may have just started an eviction proceeding. These proceedings move very quickly so it’s crucial to take action immediately.
Under the U.S. Bankruptcy Code, an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (See Section 362(b)(22).
So as long as your landlord hasn’t yet gotten a judgment for possession, your bankruptcy filing will stop that proceeding. It’ll stop the landlord from removing you, at least for a few weeks and possibly for a couple months. It gives you the time to catch your breath financially and emotionally.
Advantage—Buys You More Time to Move
Even if an eviction hasn’t been filed, you may know that you need or want to end your lease. Doing so during a Chapter 7 case usually gives you more time to move.
The landlord can’t start an eviction case without first getting special permission from the bankruptcy court. You are protected from your landlord just like any other creditor. See Section 362(a) of the Bankruptcy Code. Preventing an eviction proceeding buys you time because otherwise you would have gotten evicted within a short couple of weeks.
The landlord likely won’t bother to try to get permission to start an eviction proceeds during your Chapter 7 case. That’s because it’s usually less expensive for your landlord instead to contact your bankruptcy lawyer to make reasonable move-out arrangements. Usually that can include allowing you to stay longer, possibly for a reduced rent. Landlords sometime even pay their tenants some of their moving costs in exchange for a definite move-out date. They may do that to avoid their costs and uncertainties involved in an eviction.
Advantage—A Calmer Way to Leave
Under most circumstances it’s calmer to leave a rental that you’re behind on or terminating early when you do so under bankruptcy.
You have your bankruptcy lawyer representing you and available to help. You have the protection of the bankruptcy court if necessary. Your landlord can’t pursue you for unpaid rent or other financial obligation as you’re trying to leave. You are protected from other immediate creditor pressures as well.
So it’s usually easier on you to leave your lease behind when you have this kind of help than when you’re just doing it on your own.
Advantage—Gets You Out of an Expensive Lease
Just as important as time and peace of mind, bankruptcy saves you money.
If you are not current on your monthly apartment or home rental payments when you file your Chapter 7 bankruptcy case, those payment obligations will be discharged a few months after filing. If you are breaking a lease before the end of its term, you could owe substantial penalties for doing so. Those could potentially include many months of future rental payments. Those are all discharged as well.
Advantage—Avoid Eviction Proceeding
You have a rental credit record separate from your general credit record. For obvious reasons you want to keep your rental credit record as strong as you can. Depending on your circumstances, bankruptcy can help with that.
One way it can do that is to prevent an eviction proceeding. Understandably that’s one of the worse things possible on a rental credit record. With the right timing, your Chapter 7 filing could prevent an election proceeding from being filed.
More generally, your Chapter 7 filing helps you end your lease in a more structured and predictable way. That’s often significantly better for your landlord, which can be reflected in how it discloses the event on your rental credit report.