Will Filing for Bankruptcy Affect My Lease in New York?
Spiraling debt and inability to meet payments has led millions of Americans down the legal path of bankruptcy, thus offering them a genuine opportunity for a fresh financial start to consumers facing multiple debts. Clearly not an easy decision—or a matter to be taken lightly, without examining all associated aspects—filing for bankruptcy, either under Chapter 7 or Chapter 13, entails various possible consequences for your everyday life and living expenses.
Accordingly, one of the key issues prospective bankruptcy filers worry about is whether (and how) filing for bankruptcy may affect their lease in New York. This matter becomes particularly pressing considering how hard it can be in our state to find a home to rent, have your rental application approved, and sign the much-desired lease agreement. Although it is possible, in certain cases, that filing for bankruptcy may affect your lease, it is also often the case that Chapter 7 or Chapter 13 bankruptcy may mean that you will eventually be regarded as a better rental applicant, as the desired effect of bankruptcy is the improvement of a person’s financial situation.
Notwithstanding the above, each bankruptcy case is different, so it is crucial that you are aware of your rights but also of the individual risks involved in your particular situation, including the possibility of facing eviction from your rental property, finding it challenging to renew your existing lease, or securing a new rental property post-filing. If you are a renter and considering filing for bankruptcy, you can reach out to the legal team at Roemerman law for a free initial consultation and to find out how we can help you make informed decisions and go through the process.
Tenancy and Filing for Bankruptcy: the Basics
The main questions that need to be addressed in the event you are a tenant and you are considering filing for bankruptcy are:
- whether your rental payments are current;
- if you wish to continue living in the rental property after filing; and
- if you are (also) viewing bankruptcy as an opportunity to get out of your real estate lease early.
Keeping Your Lease
Regarding the first two questions set out above, the general answer is that, if at the time of filing for bankruptcy you are current with your rental payments and wish to keep occupying your rental property, you can do so provided you continue to pay your rent regularly and in full. This requirement also includes the full payment of any other obligations that may apply under your lease agreement, such as late payment fees, until its term is over.
Strictly speaking, you do not need to inform your landlord about filing for bankruptcy. Having said that, you will have to list your lease agreement in Official Form B 106G, which concerns executory contracts and unexpired leases, along with your landlord’s name and contact information, who will receive a copy of Official Form 309A after the filing of your case . As a matter of courtesy, you may wish to consider informing your landlord beforehand about your intention to file for bankruptcy—especially if you are renting directly from an individual, rather than a business or property management company—so they can be informed about how your filing might affect them.
In general, keeping your lease current presupposes that you continue to make all necessary payments under your lease agreement. If you are behind on your rent and decide to file for bankruptcy while also wishing to continue living in your rental property, the situation becomes more complicated. The answer to the question of whether you may be in danger of losing your apartment in such cases will depend on several factors, and you will need to act effectively and strategically.
Due rental payments constitute debt that must be listed in Official Form B 106E/F, also stating your landlord’s name and mailing address, as well as the approximate amount of back rent you owe. Once your bankruptcy case is filed, the “automatic stay ”—an injunction that halts actions by creditors to collect debts—is normally initiated. This will prevent your landlord from evicting you, at least temporarily. Even so, if you wish to remain on the property, you must make arrangements to catch up with payments due.
Back Rent and Risk of Eviction
Irrespective of the beneficial, yet temporary, effect of the automatic stay, living in a rental property at the time of filing for bankruptcy and having rent arrears means that you may be facing a real risk of eviction. Moreover, you will also need to be aware of what is to happen in respect of the rental payments due, before and after your case filing.
With reference to the second question, the single, most valuable piece of advice is that you should ensure that payments are duly made for the time you live in the rental property after your case is filed. The debt owed before the filing, which may include back rent listed in Official Form B 106E/F, will be considered in the context of your bankruptcy petition and may form part of the discharge. Conversely, all debts incurred or entered into after the filing of your petition will not be included in your bankruptcy and, thus, cannot be eliminated by your bankruptcy discharge. Hence, making all necessary payments after the filing of your case is a crucial post-petition obligation that you need to bear in mind if you wish to continue living in your rental property.
As a general rule, back rent listed in your bankruptcy filing paperwork is dischargeable as an unsecured debt, just like credit card debt or medical bills. Consequently, hundreds of thousands of Americans who have found themselves in default on their lease agreement, in addition to other accumulated debts, have opted for bankruptcy as a way of getting back on their feet and having this kind of debt discharged.
The powerful tool offered by filing bankruptcy, namely the application of the automatic stay, means that your creditors, including your landlord, will have to cease efforts to collect any debts that are owed. Likewise, the automatic stay generally prevents eviction until the bankruptcy court has assessed the merits of your case. Nevertheless, in some cases, the automatic stay may be lifted and eviction can proceed, so you must be aware of what is likely to happen in your individual situation and plan ahead. To this end, it is highly recommended that you seek professional advice well before the amount of back rent you owe gets out of hand.
Some tenants face spiraling debts resulting in the inability to meet rental payments. They may, however, delay filing for bankruptcy for various reasons. They then find out that their landlord has obtained a “judgment of possession.” In such cases, where a relevant eviction judgment has already been issued, the automatic stay will not prevent eviction. Therefore, to benefit from bankruptcy and have a better chance at fighting an eviction, it is imperative to file before your landlord gets a judgment of possession.
Be that as it may, New York law does have provisions in place for tenants facing such circumstances, offering them the opportunity to prevent eviction under certain conditions. If you find yourself in this situation, you may seek to exercise your legal right to cure the default on the bankruptcy petition by taking various required steps. First of all, you will need to file a certification with the court, indicating that your State allows you to cure your default after your landlord receives an eviction judgment, and serve a copy thereof to your landlord. You will then have to deposit the full amount of rent owed to the landlord within 30 days of the filing with the bankruptcy court clerk, pay all outstanding rent 30 days thereafter, and file a certificate with the court confirming that you no longer have rent arrears. Therefore, if you find yourself at the end of an eviction case but still wish to stay in your rental home, the automatic stay can only protect you provided you deposit all money owed with the court and also submit the required certification.
Another example where eviction may not be stopped by bankruptcy is when your landlord suspects the use of illegal drugs on the premises or claims that the property is in danger. In such cases, and generally, when an eviction is sought for reasons other than simply past-due rent, it is most likely that your bankruptcy filing may not suffice in stopping the eviction even when no judgment of possession has been obtained prior to your bankruptcy filing. Of course, your landlord will still have to file an eviction case against you (and win it!), and you will have an opportunity to contest it—but it is best to avoid finding yourself in such a situation. In broad terms, your landlord will have to file a certificate with the court, stating that an eviction case has been filed against you based on the above-mentioned grounds. Following this, you will have just 15 days to file an objection. Failing to do so means that the landlord will be free to move forward with the eviction. If you object within the set deadline, a hearing will be scheduled by the bankruptcy court, where you will be able to argue before the judge against the requested eviction.
Therefore, even though the automatic stay prevents landlords from evicting a tenant while in bankruptcy, permission to evict can be successfully sought from the court if the latter fails to make rent payments. Landlords can file a motion and request a lift on an automatic stay to begin or continue an eviction for virtually any reason. One of the main roles of your bankruptcy trustee is to seek out funds to pay back your creditors. Therefore, as tenancies cannot be converted into funds, landlords often have a good chance of success in terms of convincing bankruptcy courts to protect their property rights over the debt issues of tenants. Most evictions will not affect the actual bankruptcy estate, so courts are likely to grant landlords’ eviction requests unless you can bring forward a compelling reason why the eviction should not take place.
Lastly, on the general question of eviction and how this can be addressed (or not, as the case may be), it is important to bear in mind another strategy landlords might follow when no eviction case has been initiated before a tenant’s bankruptcy filing, namely waiting for a few months until the bankruptcy case is closed before proceeding to file an eviction case.
Chapter 7 v. Chapter 13 Bankruptcy and Leases
If you are not current on your rental payments and are assessing how your rental lease is likely to be affected should you decide to file for bankruptcy, keep in mind the two fundamental differences between filing for bankruptcy under Chapter 7 and Chapter 13. Chapter 7 bankruptcy, the most common form of personal bankruptcy, entails the liquidation of a person’s non-exempt assets and the subsequent discharge of all or part of the debtor’s unsecured debts. On the other hand, Chapter 13 bankruptcy, also called a “wage earner’s plan,” enables individuals with regular income to repay all or part of their debts under a proposed repayment plan to make installments to creditors over three to five years.
When it comes to considering what will happen to your lease in New York once you file for bankruptcy, the main things to remember are the following:
- In a Chapter 7 “liquidation bankruptcy”, it is the trustee who ends up having control over what happens to your lease, i.e. whether it is to be assumed (i.e. kept current) or rejected. Conversely, in Chapter 13 “reorganization bankruptcies”, you can decide whether you wish to assume or reject your lease. If you have fallen behind on your rental payments and decide to file for bankruptcy under Chapter 7, the trustee appointed to handle your case is in charge, so they will be deciding on whether to reject or assume the lease. If they choose to assume it, you will have to deposit the rent amount due with the clerk of the court handling the eviction within 30 days from filing your bankruptcy petition. Following that, if you continue making your monthly payments, the automatic stay will remain in place until your bankruptcy case is closed. This will grant you protection against eviction for that time. In the opposite event, should the trustee decide to reject the lease, the landlord may be able to proceed with an eviction.
- Chapter 13 bankruptcy, which involves a repayment plan for your debts, offers you more control over how you may address past-due rent. In Chapter 13 bankruptcy it is up to you to decide whether you wish to assume your lease, meaning that you will have to pay back the overdue rent if you want to keep your apartment, or reject the lease and vacate the premises. If you choose to keep your lease, your back rent payments will form part of your repayment plan, which may well be a lot longer than might otherwise be ordered in an eviction case. At the same time, you will also have to pay your current rent in a timely fashion. Should you start falling behind on your current rental payments, your landlord will be able to file a motion for relief from the automatic stay, so eviction proceedings may be initiated.
Bankruptcy and Rent-Controlled Apartments in New York
The position of those bankruptcy filers who are fortunate enough to live in New York apartments where rent is regulated merits special attention. Living in rent-stabilized premises, for which the amounts charged by landlords are limited, means that you are a tenant paying significantly less rent than the market value of your apartment. The downside to this is that filing for Chapter 7 bankruptcy in such situations may adversely affect your right to stay in your rent-controlled apartment.
In theory, any lease can be sold in bankruptcy but, particularly in bankruptcies under Chapter 7, the trustee hired to liquidate the debtor’s estate may well be interested in having the stabilized debtor/tenant removed from the premises. It is not unheard of for trustees who have become aware of such rental leases to contact the landlord with a view of seeing whether they would be willing to pay a sum for having the filer/tenant removed from the apartment. Indeed, all the trustee will have to do in this case is file a motion to the court to sell the lease.
Clearly, not all trustees are willing to engage in such processes, and many find the idea abominable. Nevertheless, the hard truth is that this is a situation that does happen, as it presents lucrative benefits for both the trustee and the landlord: if the rent payable is well below market value, it is more likely that the trustee will receive a considerable sum for having the debtor/tenant removed, while the landlord will be able to increase the rent for prospective new tenants. In light of the above, if you are a tenant currently living in a rent-controlled apartment in New York and you are contemplating filing for bankruptcy, this is something you should look into with an experienced bankruptcy professional. One of the things you will inevitably be advised to consider in such circumstances is whether filing bankruptcy under Chapter 13, rather than Chapter 7, might be a better option for you.
Bankruptcy as a Means of Early Termination of Your Lease
Generally speaking, tenancy agreements can be terminated early provided your landlord also agrees to it—which is not something they have to do. Therefore, you are essentially responsible for paying rent until the end of your tenancy contract or the next break clause point. In cases where you struggle to meet payments and no longer wish to continue living in your rental property, the decision to file for bankruptcy may have additional benefits for you in terms of enabling you to leave your apartment and terminate your residential property lease before its expiry date.
Filing for bankruptcy can allow you to end your lease early and, thus, no longer be liable for payment of rent. Under Chapter 7 bankruptcy, past-due rent, as well as late payment fees and other costs the landlord may have incurred concerning the rental property may be forgiven (i.e. discharged). This, of course, also means that your landlord can initiate an eviction action against you, so if you are planning to end your lease early and vacate your rental premises, it is important to file your bankruptcy petition early and seek to have any back rent discharged.
Even if you are current on your rental payments but wish to leave your apartment and end your lease early, filing for bankruptcy may allow you to reject your liability under the rental agreement, as bankruptcy laws essentially terminate your responsibilities. Naturally, if you are planning to end your lease early but wish to remain at the premises for a while after filing, you will have to pay rent for this period: as mentioned earlier, bankruptcy filing protects you from any collection actions for back rent as of the date of your case filing, but rental debt accumulated after filing is not dischargeable.
Renewing Your Lease after Filing for Bankruptcy
Filing for bankruptcy will appear on your credit report for seven to ten years. This, however, is not something that will necessarily adversely impact your ability to renew your lease—or find a new rental property. As bankruptcy is meant to improve your financial situation, irrespective of whether you file under Chapter 7 or Chapter 13, landlords do not always view bankruptcy as a negative thing. Most landlords will run a credit check before deciding whether to renew an existing lease agreement or offer a new one, so it is one of the factors they might take into consideration. Of course, credit checks are common irrespective of whether a prospective tenant has filed for bankruptcy or not, and there are many other aspects of your credit history, besides bankruptcy, that a landlord is likely to take into account.
If you are looking to renew your lease or find a new rental property post-bankruptcy, it would be helpful to explain how your bankruptcy case has affected your finances and current disposable income in a way that has enabled you to be in a better position to make future lease payments. This, in addition to a security deposit payment and a good rental history evidenced, for example, on the basis of past rent payment slips, can be valuable tools for prospective tenant filers, even when their credit history is less than perfect.
In all, landlords are mainly looking for potential tenants who will be able to afford the rent and make regular monthly payments while keeping the property in good condition, and without causing other kinds of problems. A person who has recently filed bankruptcy, especially if their case has been closed and has no longer accumulated debt, may well be considered as a safe choice of tenant.
Filing for bankruptcy in New York is an option that may enable you to stop or stay an eviction from your rental residential property, albeit temporarily. It may also offer an opportunity to save up some money, provided your back rent is discharged, thus allowing you some time to reach an agreement with your landlord to stay in your apartment. If you wish to effectively address an ongoing eviction case or preclude a foreseeable eviction in the context of filing for bankruptcy, it is paramount that you do so expeditiously and avoid any delays in filing. If an eviction process has not progressed too far, and you are not facing a situation where your landlord has alleged drug use or another dangerous condition in an eviction case, you may be able to benefit from filing bankruptcy.
Contact Roemerman Law
If you are considering filing for bankruptcy and wish to explore under which Chapter to file and how this might affect your lease in New York, Roemerman Law is here to help you make an informed decision and make the most of the bankruptcy tools available to your particular circumstances.