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:
If my landlord files for bankruptcy, will I have to move out?
How does the kind of bankruptcy I have as a renter affect me and my security deposit?
Where do I send my rent if my owner went bankrupt but my lease is still going on?
If a new owner wants to move in, do I have to leave even if my lease has not run out yet?
Find out what it means for you if your owner goes bankrupt.
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 my landlord files for bankruptcy, will I have to move out?
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.
You pay rent month to month. If you are a month-to-month renter, your owner can end your lease just like they could for any other reason with the right notice.
Your lease is coming to an end. At the end of your current lease term, your owner might not offer you a new one. This might not be the case if local renter rules give you the right to renew.
Someone who wants to live in your rental bought it. Depending on the rules of your lease and the laws in your area, the new owner may be able to tell you to leave before the end of your lease.
The lease is turned down by your owner. When a person files for bankruptcy, the law gives the landlord the choice of keeping the lease or not. If they do not like it, you can sign an Agreement to Cancel Lease or stay there until the end of your lease. If you keep living there after the lease has been turned down, your owner is freed from most of their responsibilities. You can lower your rent if they do not do something you asked them to do, like make fixes.
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.
Where do I send my rent if my owner went bankrupt but my lease is still going on?
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.
If a new owner wants to move in, do I have to leave even if my lease has not run out yet?
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.
You and the new owner could also agree on something different. For example, you might want to move out and they might want to move in sooner. They might also let you stay if you sign a new deal for more time.
Find out what it means for you if your owner goes bankrupt.
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.
