What are a renter’s rights if an owner goes bankrupt? What should a tenant do to protect himself or herself?
What you will find out:
Even if you pay your rent on time every month, your owner could be having their own financial problems that cause them to go bankrupt. Even though your landlord’s bankruptcy could end your lease sooner than you thought, the process usually takes a while. Even then, it may not change anything about your deal. No matter what, as a renter, you should know how this could affect you and what you need to do legally to protect yourself.
If your owner files for bankruptcy, you probably will not have to move out of the place you rent right away. Most of the time, you can stay in your home until your lease is up. You might also be able to keep your lease going. But you might have to leave if any of the following things happen.
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How does the kind of bankruptcy I have as a renter affect me and my security deposit?
If your owner files for Chapter 7 bankruptcy, they will likely sell the rented property to pay off their debts. If they file for Chapter 13 bankruptcy, they generally get a payment plan without having to sell their assets. However, they may still decide to sell their rented property or give it to the bank. On the other hand, they may need rental income to stick to their plan to pay back the loan.
If the bank or another buyer buys the rental property, your employer changes. You can usually stick to the rules of your current lease, but your new owner may want you to sign their own lease when yours is up for renewal. Your original security deposit will usually be given to your new owner and held until the end of the lease, but you should make sure they have it.
If your lease is over, you should get your security deposit back, unless your owner has a reason other than bankruptcy to keep some of it, like damage or unpaid rent. To get your deposit, you may need to make a claim with the bankruptcy court.
During the bankruptcy process, you still have to pay your rent on time. When the owner files for bankruptcy, a manager may take over handling the rented property. In that case, you would pay the caretaker instead of the landlord, or if a new landlord took over, you would start paying the new landlord.
If you get a letter to pay someone else, you might worry that it is a scam. But you must pay rent to the right person or you might not get credit for it. For example, if you pay your old landlord but they do not send the money to your new landlord, you may still owe rent to your new landlord. You might want to check with your present owner, the bankruptcy court, or your lawyer about the warning to pay rent to someone else.
Under the federal Protecting Tenants at Foreclosure Act, a new owner of a property that is going through foreclosure can not ask you to leave before the end of your lease without giving you at least 90 days’ warning. The new owner must also follow the laws of the state. In some places, they have to stick to the current deal until the end date. In some places, a new owner can choose to end a current lease. It could also depend on how your lease is written.
If your landlord has told you that they are filing for bankruptcy, you will want to know what might happen to your lease or security deposit.
