What Happens if Your Landlord Files Bankruptcy?
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Landlord Filing Bankruptcy

When a landlord or property owner files bankruptcy, unique issues often arise. The issues usually include tenants' concerns about whether their lease will survive their landlord's bankruptcy.

In addition, landlords may be concerned about whether a tenant can stop an eviction action by filing bankruptcy. Both of these issues are addressed in the materials below.

This information, though, just provide a general outline. Bankruptcy laws vary widely by state. To connect with a lawyer in your area for a free consultation today, simply fill out the case review form below.

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Landlord Filing Bankruptcy: Effect on Tenant

Much like homeowners who file bankruptcy to prevent home foreclosure, landlords in debt also file bankruptcy in order to protect their property.

When landlords file bankruptcy, they can either assume their leases with tenants or reject them. If a landlord assumes the lease, then a tenant continues paying rent as before, as long as the landlord holds up his or her end of the bargain.

If, however, a landlord rejects a lease, which effectively cancels it, the tenant has a few options:

  • First, a tenant can file a claim in the landlord's pending bankruptcy asking for compensation for any expenses associated with the cost of losing the current lease and finding a new place to live.
  • Another possible option for tenants is to simply stay on the premises through the course of the lease and reduce their total rent by the amount of money the landlord's lease rejection has cost them. This reduction may include the cost of services the landlord no longer provides, such as water or trash.

While these are options some tenants may pursue when their landlord is filing bankruptcy, each situation is different and calls for unique actions.

Speaking with a local bankruptcy lawyer may help provide information on your local landlord and tenant laws.

Landlord Filing Bankruptcy: Evictions

If, on the other hand, a tenant is filing bankruptcy to avoid an eviction, other rules apply. These include:

  • Under current bankruptcy law, if an eviction notice is given before the tenant files bankruptcy, then the automatic stay does not usually stop the eviction.
  • There is, however, an exception to this rule. If a tenant "cures" the situation by fixing the problem that led to the eviction, or pays back the rent that was due before the bankruptcy occurred, the eviction may be prevented.

Thus, it may be possible for a tenant to stop eviction by filing bankruptcy, but this also depends on the vagaries of your state’s property laws.

To learn more about your legal rights when a landlord files bankruptcy, contact a local bankruptcy lawyer today.

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