Are you a tenant behind on your rent? Here is what you need to know about filing for bankruptcy. Many people facing eviction often hear recommendations that filing bankruptcy can “stop” their eviction. Bankruptcy can help stop your eviction, in some, but not all cases. Here, we decipher how bankruptcy can assist with your eviction. Your situation will depend on how behind you are on your rent payments. Your situation will depend on what chapter of bankruptcy you will file. You will also need to make sure your bankruptcy paperwork is filled out correctly.
How behind are you on your rent payments?
The Court will want to know the following information:
- What is your monthly rent payment?
- When was the last month you paid your rent?
- Has your landlord obtained a “Final Judgment” from the court.
- Do you want to assume or reject the lease?
The Court needs to calculate how behind you are in your rent payments. The monthly rent payment multiplied by the number of months you have not paid your rent is your debt to the landlord. For example, if your rent is $850.00 and you last paid your rent in March 2020, your debt to the landlord is $10,200 ($850 x 12 months).
If your landlord already went through the court process and an eviction judge signed a Final Judgment of Possession, you were technically and officially evicted already. This means you no longer have any right to the lease. This will also mean that your case will be treated differently. Normally, filing bankruptcy temporarily “freezes” your eviction case through a legal concept called the “automatic stay”. After you file bankruptcy, creditors (including landlords) must stop all collection efforts against you for a period of time, unless the landlord get permission from the bankruptcy court to continue their collection efforts. This protection from collection efforts is referred to as the “automatic stay.” The automatic stay applies in Chapter 7 and 13 cases. However, if your landlord as a Judgment of Possession against you, the automatic stay will not protect you and your landlord can enforce judgment.
For this reason, it is extremely important to file bankruptcy BEFORE your landlord gets the Judgment of Possession from the eviction judge.
Your options for your lease are the legal words: assume or reject. You can either assume the lease (keep it, stay in the home, pay rent) or reject the lease (get rid of it, do not owe money, leave the property). You need to make sure you are speaking the same language as the courts. Decide before you file whether you want to assume or reject your lease.
Should you file a Chapter 7 or a Chapter 13?
Courts treat a Chapter 7 bankruptcy much differently if you are a homeowner versus a renter. Chapter 7 cases allow you to work to resolve your missed mortgage payments inside a Chapter 7 bankruptcy case. This is not true if you are a renter. If you are a renter and you plan on filing a Chapter 7 bankruptcy, you need to make sure that you are current on your payments to the landlord. This is the situation in which most people get evicted in bankruptcy. It is important that if you are in eviction proceedings or behind in your payments to your landlord, that you speak to an experienced bankruptcy attorney about your options about assuming or rejecting your rental lease, which chapter of bankruptcy to file, and how realistic your options are.
If you are behind on your rent payments and you file a Chapter 7, you may not be able to keep your home. If you are not current in your rent payments and you file a Chapter 7 case, you will either have to convert your case to a Chapter 13 case or you could risk losing your home. You may instead choose to reject your lease in the Chapter 7 case.
Individuals may use a chapter 13 proceeding to catch up on missed rent payments and protect themselves from eviction. A chapter 13 bankruptcy requires you to create a plan to repay all or part of your debts. You must also be a wage earner in order to file a Chapter 13. Your missed payments for the rent will need to be included in your Chapter 13 plan, as well as payments for your rent going forward. In a Chapter 13 plan, you can catch up on your payments over five years, making the catch-up period a little more reasonable for your budget. This option may or may not be affordable based on your budget and how behind you are in your payments.
When you file a Chapter 13 case, many judges call it “pay to play”. You can play (participate) in the Chapter 13 bankruptcy case to save your eviction, but you must pay to do so. It is important to understand what payments you will be responsible for in your Chapter 13 case. In this example, we will calculate your payments over a thirty-six (36) month Chapter 13 Plan:
- You are responsible for post-petition rent payments. $850 per month for 36 months (total = $30,600
- You are responsible to catch up on your past due rent payments (from the example above) = $10,200
- You will have to pay the Chapter 13 Trustee 10% on your total payments for them to administer your case
- In some cases, if you cannot pay your attorney in full before filing your Chapter 13 case, you may pay some or a portion of the attorney’s fee in your Chapter 13 case (here, we estimate $2,000) = $2,000
These payments total approximately $47,500. This means that you will pay $1,321 per month to catch up and stay in your lease. For this reason, it is important to meet with an experienced bankruptcy attorney to understand the cost and benefit to assuming the lease versus rejecting the lease and getting a fresh start.
Fill out your bankruptcy paperwork correctly
Meeting with an experienced bankruptcy attorney can ease your fears and ensure your paperwork, and most importantly your calculations to catch up on missed payments, are done correctly.
You also need to understand what debt is versus what expenses are. Debt is an amount you owe for things that took place already. Missed payments are debt. Expenses are the monthly amounts you pay for things that are currently in existence. Electricity, groceries, and rent payments going forward are expenses. On your bankruptcy paperwork, you need to list your debt and expenses correctly. This is extremely important in order to determine if you can catch up and save yourself from eviction.
Here are 5 things that you need to correctly list in your bankruptcy paperwork:
- How much debt is owed to the landlord? Debt for missed payments to your landlord should be listed correctly on Schedule E/F.
- Who is your landlord? Your landlord should be listed correctly and with their current address on Schedule G under Unexpired Leases.
- Did you pay a security deposit? Any security deposit you paid to your landlord is an asset of your bankruptcy case and should be listed correctly on Schedule A/B.
- Will the automatic stay apply to your bankruptcy case? The automatic stay usually applies. However, the automatic stay will not apply if your landlord already has a Judgment of Possession OR if you filed multiple bankruptcy cases that the court dismissed.
Will you assume or reject your lease? You will need to correctly identify if you will assume your lease or reject the lease on the Statement of Intentions under Leases. Note: A Statement of Intentions is only required if you are filing a Chapter 7 case. If you are filing a Chapter 13 case, you will identify if you will assume or reject the lease in your Chapter 13 plan.
Meeting with an experienced bankruptcy attorney can ease your fears and ensure your paperwork, and most importantly your exemptions, are done correctly. There is no substitution for the advice an experienced bankruptcy attorney can provide. Most debtors risk losing their home if they do not have an understanding in their exemptions and what they can protect. You may find a great value in the fees you pay for an attorney to handle your paperwork correctly and counsel you about your exemptions. Our website provides frequently asked questions and helpful answers HERE. Contact Feher Law to set up your complimentary bankruptcy consultation at 727-359-0367 or Kfeher@FeherLaw.com.