I Can’t Pay My Rent!

The recent housing crisis hit Montgomery, Chester, and Berks counties hard. Many former homeowners in Pottstown, Birdsboro, Phoenixville, and other surrounding towns have become renters. Many of these rental units are not licensed. According to a January 2015 article in the Mercury newspaper, over 50% of the rental units in Pottstown lack a rental license. Some landlords refuse to provide basic services to the tenant or the apartment is advertised as something it is not. Other times, a tenant simply does not have the funds to pay the rent. Either way, a tenant can use the basic rights afforded under the bankruptcy code to protect themselves- and extend their stay in the rental unit.

In 2007, a bankruptcy judge in the Eastern District of Pennsylvania summed up federal bankruptcy protection from eviction by ruling that “a debtor’s bare possessory interest in real property is property of the estate under 11 U.S.C. § 541 and is thus protected from being taken under § 362(a)(3)”. What this means is that upon a bankruptcy filing, a valuable federal protection known as “the automatic stay” goes into effect that prevents a landlord-tenant action from moving forward. A landlord is forbidden from filing an eviction lawsuit while the stay is in effect. Even if an eviction case was filed prior to the bankruptcy filing, but the judge has not granted the landlord a judgment, the automatic stay prevents eviction. It is crucial that a renter file for bankruptcy before a judge has granted an eviction judgment to a landlord. Once a judgment has been granted to the landlord, the filing of a bankruptcy by the tenant does not protect the tenant from eviction (11 U.S.C. § 362(b)(22)).

Bankruptcy Protection For Tenants In Berks, Montgomery, and Chester County

The protection afforded to a tenant who files a bankruptcy prior to an eviction judgment does not last forever. In Chapter 7 bankruptcy, the tenant is automatically protected from eviction for at least sixty days from the date of filing. However, this protection typically lasts much longer. The landlord first must file a motion for relief from the bankruptcy automatic stay before initiating or restarting an eviction. A motion such as this in bankruptcy court can be quite expensive and time-consuming for a landlord and is not ordinarily sought. More commonly, a landlord will wait to initiate or restart an eviction until the entry of the order discharging the tenant’s debts occurs in bankruptcy court, which terminates the automatic stay. The timeline from the filing of a Chapter 7 bankruptcy to the discharge of debts varies but is approximately 90-120 days from the date of filing in most cases. Therefore, a renter who cannot pay rent and files a Chapter 7 bankruptcy can live in the property without payment of rent for about four months in most cases prior to eviction. Note that because the discharge of debts granted to a tenant in a Chapter 7 case discharges the tenant’s obligation on the residential lease, any subsequent action by the landlord to evict can no longer include a request for monetary damages. The judge can only provide the landlord with an order for possession with no monetary damages, no matter how long the tenant stayed in the property without payment of rent.

Tenants who file a Chapter 13 and cannot pay their rent have additional protections. Tenants in Chapter 13 bankruptcy have approximately six months to decide whether they want to assume or reject the residential lease. In all cases, a landlord cannot evict a tenant in Chapter 13 bankruptcy without first seeking relief from the automatic stay. As a practical matter, the tenant can live in the property for quite some time, perhaps much longer than in the case of a Chapter 7 bankruptcy filing. Once the lease is rejected by the tenant, in the vast majority of Chapter 13 cases, the unpaid rent by the landlord is never paid by the tenant regardless of how long the tenant lived in the property.

In summary, tenants who are struggling to pay rent or who are unwilling to pay rent have valuable protections in both Chapter 7 bankruptcy and Chapter 13 bankruptcy. It is important to take action before an eviction judgment is entered to maximize your rights under the bankruptcy code.

Call our office to discuss your specific situation and to create a financial plan that will improve your financial well-being.