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Renting a home while in Bankruptcy: the Legal and the Practical.

Posted by Brian Hallaq | Feb 07, 2023 | 0 Comments

When you file for Bankruptcy, the case can last several months (e.g. Ch. 7) or several years (e.g. Ch. 13).  During that period of time, your circumstances can change.  Specifically, it is not unusual for you to want to find a new place to live.

So, this can present a problem.  The internet is a wonderful and terrible place at the same time.  There is a wealth of information online, but oftentimes a lot of that information is bad.

When it comes to landlords, there are a myriad of horror stories online about landlords claiming that a tenant filed for Bankruptcy and suddenly this person was living in the property rent-free for a long time.  Oftentimes these stories are severely exaggerated or simply untrue, but their effects have caused a lot of landlords to reject potential tenants who are in a pending Bankruptcy case.

It is true that when you file for Bankruptcy, a very powerful law kicks into place.  The law is found in 11 USC §362 and is often referred to as the “automatic stay”.  The automatic stay prevents any act to collect on a debt that occurred BEFORE the filing of the Bankruptcy, and in the case of a pending eviction for a tenant who has not paid rent, this can delay those proceedings.  Among landlords, these stories can be very scary and frustrating, and it is true that a Bankruptcy filing for a debt (like back owed rent) that occurred BEFORE the filing of the Bankruptcy might delay some of the remedies available to a landlord (such as eviction).

But that is very different from a tenant who is in a pending Bankruptcy case and is trying to find a new residential rental.  By definition, the Bankruptcy case has already been filed, and Bankruptcy cases have absolutely zero effect on any obligation that was incurred AFTER the filing of the Bankruptcy case.  So if a person filed for Bankruptcy in January, and then tries to rent a residence in February, regardless of the type of Bankruptcy that was filed (i.e. Ch. 7 or Ch. 13), there is no legal effect on the landlord.  If the tenant doesn't pay, they have all the same rights as a landlord with a tenant who was not in Bankruptcy.  The tenant cannot discharge any unpaid rent in their Bankruptcy, because the Bankruptcy discharge only effects debts that were incurred BEFORE the Bankruptcy was filed.

So that is the legal effect, but now we have to go to the practical effect.  There is a famous quote that says “a lie will go around the world before the truth is lacing up its boots.”  In the world of the internet this is particularly true.

If you are contemplating filing for Bankruptcy, and you know that you will need to find a new rental residence, my general advice is to plan on finding your new residence BEFORE your Bankruptcy is filed, or AFTER your Bankruptcy case is closed.  You should definitely explain this to your Bankruptcy attorney so that you can properly coordinate the filing, or get a good understanding of the timeframe in which your Bankruptcy case will conclude.

If you filed for Bankruptcy and the case has not yet completed, it can be hard to find a landlord to rent to you.  This can be particularly difficult if you are in a Ch.13 Bankruptcy case which is usually intended to last several years.  So, what are your options?  Larger property management companies are usually more sophisticated on legal matters, and while they may not be as nice to deal with as a Mom & Pop landlord, they usually have easy access to attorneys who can explain the legal reality which is that you pose no problem for them.

Another option is to reach out to your Bankruptcy attorney for a letter explaining the nature of the law as it pertains to landlord/tenant issues in Bankruptcy.  Some attorneys are not comfortable with issuing such letters as they believe that it could be construed as issuing legal advice to a third party.  In my practice, I regularly write such letters for my clients, which obviously contain clarifications for the landlord to seek out independent legal counsel, and these letters often help alleviate the concerns of a potential landlord in renting to someone in a pending Bankruptcy case.

The bottom line is that Bankruptcy often coincides with major life changes, including changing residences, and these changes need to be carefully considered before you file your case, and as always, your best source of information is going to be your Bankruptcy attorney.

About the Author

Brian Hallaq

My name is Brian and I have been a practicing attorney in Bankruptcy for over 20 years helping thousands of clients.  I have worked for the Chief Judge of the United States Bankruptcy Court for the Western District of Washington, as well as several small boutique Bankruptcy law firms handling Bankruptcy cases in Washington State and the State of California.  I have litigated for and against major banks, and I have recovered millions of dollars on behalf of clients in my career.


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