Recently on our bankruptcy forum a user asked, “I have been renting for three years. I owe about $3,000 is back rent. The landlord is threatening to evict me. I am wondering what happens to my rental debt if I file Chapter 7 bankruptcy? Will it be discharged or will I have to repay the debt?”
Chapter 7 bankruptcy overview
Debtors who file Chapter 7 bankruptcy will have a bankruptcy trustee appointed to their case. This trustee will gather all nonexempt property and liquidate the property, using the proceeds to repay the creditors. Many debtors who qualify for Chapter 7, however, have limited income and assets so there may be few assets to sell.
Qualifying unsecured debt will be discharged, which means the debtor no longer has an obligation to repay the debts. Debts which are exempt from discharge, however, include secured debts, spousal support, child support, criminal restitution, and student loans (exceptions apply).
Debtors who do not qualify for Chapter 7 bankruptcy can file Chapter 13 bankruptcy. Chapter 13 does not automatically discharge debts but rather allows a debtor to repay their debts over 3 or 5 years.
Let’s take a look at what happens to rental debt in Chapter 13 and Chapter 7 bankruptcy.
Chapter 13 bankruptcy and rental debt
If a debtor decides to file Chapter 13 bankruptcy he has two options: assume the lease and keep it, or reject the lease and move out of the apartment. Renters who decide to keep the lease must repay rental payments in arrears within their Chapter 13 debt repayment plan, which means they must repay all past rent and continue to make monthly rental payments. Failure to keep rent current will allow the landlord to petition the court for relief from the automatic stay – allowing for an eviction.
Chapter 7 bankruptcy and rental debt
Debtors may discharge past due rental payments in a Chapter 7 bankruptcy. Unfortunately, however, unlike a Chapter 13 repayment plan, renters do not have the option to repay rent in arrears and get current on the lease.
So, what happens to the tenant? The decision is made by the trustee. The trustee may decide to assume the lease, which gives the tenant thirty days after the bankruptcy petition is filed to repay the rent in arrears. Assuming the tenant makes this payment and continues to pay their monthly rent, the automatic stay remains throughout the duration of the bankruptcy and the renter is protected from eviction.
If, however, the trustee rejects the lease, the tenant is not obligated to continue to pay rent. The past due rent is also discharged within the Chapter 7 bankruptcy, but the tenant may no longer be protected from eviction. In fact, it’s possible the landlord will file for a Motion for Relief and request to begin the eviction process.
What about an eviction already in progress?
If a writ of eviction has already been issued before the bankruptcy filing whether the eviction will be halted by bankruptcy may depend on the timing of the eviction notice. In some cases, the bankruptcy court may decide that the lease has already been terminated and force the tenant to move. If, however, a final order of eviction has not been issued, the automatic stay may temporarily halt the eviction process.
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