Tenant Filed Bankruptcy During Court Proceedings

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Tenant Filed Bankruptcy During Court Proceedings

Cody McCraw
Rental Property Investor · Roanoke, VA · Member since 2017 · 11 posts · 7 votes

I just recently started listening to the BP podcasts and haven't been on the forums yet so I really hate that the my discussion on this forum has to be a bitter one, but I've found myself in less than desirable situation as a landlord.  I filed suit a month ago against a former tenant who owes me for back-owed rent and property damage.  The tenant hired an attorney who asked for a continuance to dispute the charges.  I complied with the court by submitting a bill of particulars.  The attorney has now sent me notice that the tenant is filing for bankruptcy and that our upcoming court date will be stayed. 

Has anyone been in this situation before?  What can/should I do?

Background information:  A former tenant of mine moved out of my house in November 2016 after occupying the property for one year. Towards the end of his lease he got behind on the rent (+/- $2,000), but since he had already given notice to move out I didn't bother with the eviction process. Instead I convinced him to sign a loan agreement, which turned the back owed rent and any potential damages into a loan with monthly payments, including interest. During the move-out inspection I discovered a significant amount of damage to the property (+/- $5800), which he didn't dispute at the time. Two months into the repayment process, he quit paying so I filed suit in our local court. Since the tenant moved out I renovated the house and released the property to a new tenant. 

Thanks in advance for any comments or suggestions.

Cody

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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
9y
Originally posted by @Cody McCraw:

@Matt Clark @Linda Weygant Him and his wife are on the lease jointly, but he's the bread winner so I went after him.  He's got a $100k salary while she has $900/month disability.  I felt like a suit against her was pretty pointless since I would never be able to collect anything.  Do you think his bankruptcy filing affects by ability to sue her?  

 I think disability payments from social security are not attachable for garnishment, etc, so going after her might be pointless.  If you do, it's likely she'll just file bankruptcy as well and you're in the same boat, but more court costs out of pocket.

If the property is in a community property state, there might be some other angle to pursue on that, but now we are way outside my area of knowledge - but it's something to research further.

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  • Matt Clark
    Roanoke, VA · Member since 2014 · 404 posts · 203 votes
    9y
    Hey Cody McCraw , that's a bad situation. Once they file bankruptcy I don't think there is any way you'll get a judgment or collect anything that's owed. Were they the sole lessee? If not, you can proceed with action against the other person.
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  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    It's possible you'll get some kind of settlement from the bankruptcy, depending on how it all shakes out.  Keep following the process, file your paperwork, show up for court if necessary.

    Agree with @Matt Clark though - if there is another person on the lease, start that paperwork now.

    Podcast Guest on Show #244
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  • Jason Moore
    Real Estate Broker · Kansas City, MO · Member since 2016 · 36 posts · 38 votes
    9y

    Hi @Cody McCraw,

    Typed up a response to your query without realizing you've already had possession of the home returned. EDIT: Agree with above posters - you're unlikely to receive any compensation on a potential judgment, as the bankruptcy will likely wipe out that potential debt for tenant. The hearing you have scheduled will effectively be nullified, and you will unfortunately be lumped in as a "Creditor" along with others who will be entitled to pennies on the dollar for collections (assuming you continue to pursue the debt). 

    This one sucks, but the only option you have is reaching out to a bankruptcy Attorney yourself - to learn of the options at your disposal. It may not be worth pursuing much beyond a phone call for information. Sorry to hear about the issues you're having.

    Cheers.

    1Reply
  • Cody McCraw
    OP
    Rental Property Investor · Roanoke, VA · Member since 2017 · 11 posts · 7 votes
    9y

    @Matt Clark @Linda Weygant Him and his wife are on the lease jointly, but he's the bread winner so I went after him.  He's got a $100k salary while she has $900/month disability.  I felt like a suit against her was pretty pointless since I would never be able to collect anything.  Do you think his bankruptcy filing affects by ability to sue her?  

    @Jason Moore That's the same thing his attorney told me when I responded to the bankruptcy notice.  I wasn't sure if he was just playing mind games with me so I wouldn't continue to pursue him or if he was being candid.  He did say that if the bankruptcy court does not qualify him for bankruptcy then my suit will become active again and I will get a new court date.  Until then it will stay pending in the system.  

    This is the worst situation I've encountered during the +/- 6 years I've been playing landlord so I guess my luck ran out.  I guess I'll just chalk it up as a learning experience and move on.  The positive out of this whole deal is that I moved in a new tenant paying $50 more rent and she is current on her rent.  I've also started turning my properties over to a property manager as the units turn to avoid future situations like this and free up my time.  

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  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Cody McCraw:

    @Matt Clark @Linda Weygant Him and his wife are on the lease jointly, but he's the bread winner so I went after him.  He's got a $100k salary while she has $900/month disability.  I felt like a suit against her was pretty pointless since I would never be able to collect anything.  Do you think his bankruptcy filing affects by ability to sue her?  

     I think disability payments from social security are not attachable for garnishment, etc, so going after her might be pointless.  If you do, it's likely she'll just file bankruptcy as well and you're in the same boat, but more court costs out of pocket.

    If the property is in a community property state, there might be some other angle to pursue on that, but now we are way outside my area of knowledge - but it's something to research further.

    Podcast Guest on Show #244
    2Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    9y

    Hi @Cody McCraw

    DISCLAIMER: Not a lawyer just some dolt spewing his opinions on the internet.

    I have to agree with the others. I think since you moved it to a loan you may be dealing with just being a creditor. I'd get a consult with a lawyer though and let them advise you. My gut though says that you are going to be writing this off.

    Hope for the best but I wouldn't spend too much time and or energy trying to chase after them. Good Luck and keep us informed please.

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  • Shaun Patterson
    Property Manager · West Palm Beach, FL · Member since 2012 · 296 posts · 143 votes
    9y

    @Cody McCraw  (not a lawyer)  From what I have seen from the bankruptcies is that if they are married the wife is still held accountable for the money. now depending on how much of a headache you want to give the family you can file on the wife also. In my opinion all that will do is enable you to let go some stress.  That's if she does not file bankruptcy also. Now regarding the loan that you did with the tenant. I don't know how it is in virginia but in florida one options our lawyers use is to file the eviction proceedings first. then they set up a court ordered payment plan for the tenant if the tenant agrees. This is a way that the eviction still stays open if the tenant doesn't pay and its court ordered so there is a little more pull behind it. and you can pick up the eviction and judgement proceedings right from where you left off no need to start over. 

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  • Jason Moore
    Real Estate Broker · Kansas City, MO · Member since 2016 · 36 posts · 38 votes
    9y

    @Cody McCraw I'll also chime in with the obligatory (not a lawyer), but keep in mind that while what @Shaun Patterson says about spouses being on the hook for debts incurred while married may be true - here in Missouri, disability payments are a 100% non-garnishable payout to the receipient. Even assuming you were able to file against the wife, and take it all the way to a judgment - unless she wins the lottery or finds a well-paying job (unlikely), you won't see a dime of repayment from her. 

    In my experience it's fairly rare for individuals in this particular situation to jeopardize a disability payment by attempting to better their situation through employment. Not saying it's unheard of - just that you need to consider the odds in the face of potential legal/time cost to you. 

    I really wish I could offer some better advice, or tell you that there's a solution out there for you - ultimately... I think this may be one of those things that just... suck. Bankruptcies aren't a "simple" solution for people. It deals a significant blow to their credit, their ability to obtain financing/housing/auto loan/etc. This isn't a situation that they'll escape from unscathed. Yes - you get the short end of their "I got out of my debts" stick - but it's definitely not a stick they're going to be happy holding for the foreseeable future. If it helps, during the few times I've had to deal with situations like this, I remind myself this:  Every day I get to wake up being me. And each of those days, they have to wake up being... them.

    Cheers.

    1Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    9y

    With that amount of income, they aren't likely to qualify for a Chapter 7 bankruptcy.  In a Chapter 13, they'd have to pay you back at least some part of what they owe you - at maybe a reduced percentage.

    If it was me, I'd keep pursuing the claim.  Show up at any creditor hearings, etc.  Wait to see if they are granted the bankruptcy.  If they aren't, then you should be able to get a judgment and garnish the wages.

    It's true that social security disability money can't be garnished.  But, her money would have to be separated.  Once co-mingled, I think you can go after their joint funds.  

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