My tenant just filed for Chapter 13, now what?

Question

Joel Owens · Answer

To the people mentioning no debt the debtor filed a chapter 13 according to the original poster. That generally doesn't get rid of debt. It simply sets the debtor up for a repayment plan over 3 to 5 years and makes their life miserable and credit stays frozen over that time.

A large percentage 80 to 90% never finish the plan to full discharge. Either some or all parts of the chapter 13 plan gets dismissed with conformation plan because of non-payment and default of all or parts of the repayment plan.

Both ch 13 and 7 stay on the credit for 10 years even if you just file but do not go through with the whole BK. So if the debtor can pass the means test and qualify for a chapter 7 where everything is written down to zero and start fresh that is generally better than a chapter 13. Some things I believe do not get discharged in a chapter 7 like federal taxes and child support etc.

If your tenant gets their chapter 13 approved then still is likely a chance of rent default down the road as it's just too much pressure for them to balance the budget and stick with it. Chapter 7 they can breathe again and generally cannot start new credit for another 6 months minimum so should have some cash to pay the rent.

No legal advice given.

Tom V. · Answer

I agree with Tim also. Bankruptcy is for debts, it shouldn't have an impact on any future expenses like next months rent. Actually, if the result ends up being that the tenant is no longer on the hook for her debts, then that might be good for you. She won't have any more debt payments, so she should definitely have the money to pay her rent!

Good luck with this, I hope it works out.

Tim Lindstrom · Answer

I'd be interested to hear expert, or experienced, opinions.  I thought bankruptcy wipes out someones debt.  If they don't owe any back rent,  I would assume you don't have any issues.  I can't imagine someone could live in your place rent free because they filed bankruptcy.  They should still have to pay rent.

Joe Splitrock · Answer

@Jim Shepard I don't think they can force you to reduce your rent. Remaining months on the lease are not debt because the expense is yet to be incurred. Worst case they can break the lease from what I understand, which isn't probably a big deal for you. You can call the trustee or anyone you want for that matter. They may not be able to talk about the case, but you could inquire about how the process works. I would ask if landlords typically bring a lawyer and if lawyer fees are charged back to the tenant. Maybe even ask if they thing you need a lawyer. They may reveal that you don't have anything to worry about. I guess my point is that it doesn't hurt to ask.

Thomas S. · Answer

You do not need an attorney you simply need to insure your tenant is continuing to pay rent on time and in full otherwise you evict.

Stephen Renehan · Answer

I'm not an attorney, or do I play one on TV.  However, from my experience in commercial workout at a Bank, I would definitely agree with the advice cited above about speaking with an attorney who is familiar with the particular Bankruptcy nuances.  You don't want to perform a certain 'collection activity' if it will violate the Bankruptcy statute.

Nadia White · Answer

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Matthew Kreitzer · Answer

Bankruptcy attorney here. I would love to explain in detail what is going on and how best to protect yourself, but only an attorney licensed in your specific Federal District may answer such questions. A general practice attorney isn't going to have the answers either. You need to reach out to a local Debt Collection firm licensed in your area for more information.

Joe Splitrock · Answer

@Jim Shepard I would have agreed with @Tim Lindstrom and @Matt Bacenet but I did a quick Google search and it seems when going through bankruptcy there is a freeze on eviction. The trustee has latitude to work with a landlord to let someone out of a lease or stall an eviction. I read that an eviction is possible but it seems to become more complicated.

If the tenant wants to keep living there, that debt restructuring could help them pay rent. Since they don't owe you money, there is no debt to forgive so that is good. If the Trustee determines they are paying too much rent, it could result in a request to let them out of the lease, which isn't the end of the world.

Some may argue a month-to-month lease would solve this problem, but even if you could give them notice of non-renewal, where would they go? You would still be stuck evicting them.

I am not sure this will turn out badly for you. Personally, I would call the trustee and talk about how it works, then if necessary consult a lawyer.

I am interested to hear what others have to say.

James Cash · Answer

Are they currently still paying you rent? Are the attorney fees you're talking about in regards to the attorney you will be using to file small claims against them?

My tenant just filed for Chapter 13, now what?

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