Can I stay in my apartment if I file for bankruptcy?
Practically speaking, as long as a tenant is current in rent payments, they can continue to occupy the apartment as provided by the lease or by common law of landlord-tenant relations. It is important to continue making timely payments while a bankruptcy case makes its way through the court. However, if a landlord was already in the process of evicting a tenant when the bankruptcy is filed, and a judgment of eviction is obtained, the landlord can generally proceed with the eviction. However, the tenant may be able to obtain a short delay of the eviction pursuant to the automatic stay provisions available under Chapter 7 and 13 of the Bankruptcy Code.
The Automatic Stay
In general, the automatic stay suspends eviction while a bankruptcy case is active. The landlord has the option of asking the court to allow the eviction proceeding to go forward by filing a motion for relief from the stay. If the landlord does not make the motion, the automatic stay will continue and the tenant cannot be evicted. It is more likely that the landlord will ask the court to lift the stay, arguing that the tenant does not have any legal right to remain on the premises, and the bankruptcy action will neither protect the landlord’s rights nor provide any financial benefit.
When an Automatic Stay May Not Work
If the court grants the landlord’s motion, the eviction proceedings will continue, particularly if a tenant does not have a lease and are behind on payments. If there is still time remaining on a lease, the court may extend the automatic stay and permit the tenant to remain in the apartment for the duration of the lease, provided payments are being paid. In any event, the automatic stay will provide additional time to find another place to live. Nevertheless, if a landlord can show that a tenant has damaged the apartment, or that controlled substances were present in the apartment, the landlord can ask the bankruptcy court to immediately lift the automatic stay and proceed with the eviction.
Rejecting or Assuming an Unexpired Lease
Under bankruptcy law, an unexpired lease is considered an executory contract, which means tenants still have the ongoing obligation to abide by the lease terms and make rent payments. The law allows the debtor in a Chapter 13 case, or the bankruptcy trustee in a Chapter 7 case, to either reject or assume an unexpired lease. If the lease is rejected, this is a technical breach and any obligations under the lease would be terminated. Rejection would also allow the landlord to proceed with the eviction. The landlord would then become a “pre-petition unsecured creditor” and any rental payments that are in arrears would likely be discharged as part of the bankruptcy case. Under Chapter 7, if the bankruptcy trustee does not assume or reject the unexpired lease within a certain time period, the lease is automatically deemed rejected. If a debtor assumes the contract, they will remain obligated under the terms of the lease, and the landlord would then become an “administrative creditor” entitled to priority payments over most pre-petition creditors.