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What Happens When Your Landlord Declares Bankruptcy?

Even if you dutifully pay your rent each month, it’s still possible that your landlord could be having financial difficulties of their own that lead them into bankruptcy. While it is possible that your landlord’s bankruptcy may end your lease sooner than expected, the process typically takes a while to unfold. Even then, it may not affect your lease at all. Regardless, as a tenant, you should be aware of how this could affect you and the legal steps you need to take to protect yourself.


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Will I have to move out if my landlord files for bankruptcy protection?

If your landlord files for bankruptcy protection, you typically won’t have to leave your rental home immediately. Typically, you can stay in your rental until the end of your lease. You may also have a chance to renew your lease. However, the following circumstances could require you to leave.

  • You’re a month-to-month tenant. If you’re a month-to-month tenant, your landlord may terminate your lease with proper notice just as they could for any other situation.
  • Your lease is expiring. Your landlord may not offer you a renewal lease at the end of your current term. This may not apply if your local tenant laws guarantee you the right to renew.
  • Your rental is sold to someone who wants to live in it. Depending on local laws and the terms of your lease, the new owner may be able to give you notice to vacate before the end of your lease.
  • Your landlord rejects the lease. When entering bankruptcy, landlords have a legal option to continue honoring your lease or reject it. If they reject it, you have the option to sign an Agreement to Cancel Lease or continue living there until the end of your lease. If you choose to continue living there after the lease is rejected, your landlord is relieved of most of their obligations. You may reduce your rent for any obligations they don’t perform, such as repairs.

How does the type of bankruptcy affect me as a tenant, including my security deposit?

Your landlord will probably sell their rental property to pay off their debt If they enter Chapter 7 bankruptcy protection. A Chapter 13 bankruptcy usually means that they will have a payment plan without selling their assets, but they may still choose to sell their rental property or turn it over to the bank. On the other hand, they may depend on rental income to honor their repayment plan.

If the bank or another buyer takes ownership of the rental property, you have a new landlord. You can generally stay under the terms of your current lease, but your new landlord may require you to sign their own lease when you’re due for renewal. Your new landlord will also generally receive and hold your original security deposit until the end of the lease, but you should verify that they have it.

If your lease ends, you are generally entitled to the return of your security deposit unless your landlord has a non-bankruptcy reason for withholding a portion of it, such as damage or unpaid rent. You may need to file a claim with the bankruptcy court to receive your deposit.

Where do I send my rent if my landlord lost their property in bankruptcy but my lease hasn’t ended yet?

You must continue to pay rent on time during the bankruptcy process. When the landlord files for bankruptcy, a bankruptcy trustee may take over managing the rental property. In that case, you would need to pay the trustee rather than the landlord or—if a new landlord takes over—you would begin paying that new landlord.

You may have concerns about a potential scam if you receive notice to pay someone else. However, it is important to pay rent to the right person or you may not receive credit for it. For example, if you pay your old landlord and they don’t forward it to the new landlord, you may still owe rent to the new landlord. It may be a good idea to verify the notice to pay rent to someone else with your current landlord, the bankruptcy court, or your attorney.

Do I have to move out, even if my lease hasn’t expired, if a new owner wants to move onto the property?

Under the federal Protecting Tenants at Foreclosure Act, a new owner can’t require you to leave before the end of your lease without at least 90 days’ notice when the property is going through the foreclosure process. The new owner also must follow state law. Some states require them to honor the current lease through the stated expiration date. Other states do give a new owner the option to cancel an existing lease. It may also depend on the specific terms of your lease.

You may also mutually agree to another arrangement with the new owner. For example, you may want to move out and they may want to move in sooner. They may also be willing to have you stay if you sign an extension of the lease.

Understand what your landlord’s bankruptcy means for you

If you’ve received notice that your landlord has filed for bankruptcy protection, you will want to know what may happen to your lease or security deposit. If you have additional questions specific to your situation, ask a Rocket Lawyer On Call® attorney for help.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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