Types of Personal Bankruptcy
Residential renters filing personal bankruptcy most often file under either Chapter 13 or Chapter 7 of the U.S. Bankruptcy Code. Chapter 7 is a liquidation bankruptcy in which the bankruptcy trustee sells the debtor's assets, with a few exceptions, and uses the money to pay off creditors. Chapter 7 bankruptcy is only available to individuals with low income and few assets. Chapter 13 bankruptcy, which is available to individuals who have regular income, allows the debtor to reorganize his debt by creating a three-to-five year repayment plan. The bankruptcy trustee takes the debtor's income, after exempting a small amount for necessary expenses, and distributes it monthly to the creditors according to a court-approved Chapter 13 plan. Once the payments in a Chapter 13 plan are complete, or once assets have been sold and distributed in a Chapter 7 bankruptcy, the debtor receives a discharge that frees him from most of his remaining debt.
Arrears in Chapter 13
In a Chapter 13 bankruptcy, a tenant can decide whether he is going to assume the lease and keep it, or reject it and move out. This decision must be made before the Chapter 13 repayment plan is confirmed, unless the court sets a different deadline. If the debtor decides to keep the lease, he can incorporate past-due rent amounts into the debt repayment plan. This would require the tenant to pay back overdue rent as well as keep up with present rent payments for the three to five years in which the Chapter 13 plan is in effect. As long as these payments are met, you may avoid eviction, but if you cannot make the payments, the landlord can petition the bankruptcy court for relief from the automatic stay, allowing him to proceed with eviction.
Arrears in Chapter 7
A renter filing a Chapter 7 bankruptcy can receive a discharge of past-due rents, but the Chapter 7 process does not allow you to make up past-due payments and become current on the lease. In a Chapter 7 proceeding, the trustee decides whether to reject or assume the lease, and if he rejects it, the landlord can usually proceed with repossession of the home. The debtor has little say in the matter. If the trustee decides to keep the lease, Section 362(b)(22) of the bankruptcy code gives the tenant 30 days after the filing of the bankruptcy petition to deposit the overdue rent amount with the clerk of the court handling the eviction matter. If she can do so, and keep up with monthly payments, the bankruptcy court's automatic stay on eviction proceedings can continue until the bankruptcy is over.
Whether an eviction will be stayed -- or automatically halted by law -- when you file bankruptcy depends on timing. If the court that has jurisdiction over landlord-tenant matters in your area has issued a writ of eviction, the bankruptcy court will likely determine that the lease is over and you have no continuing legal right to occupy the rented home or apartment. In this case, the automatic stay relative to the bankruptcy proceedings will not protect you from eviction. If a final order of eviction has not been issued, the automatic stay may temporarily halt the eviction process until the bankruptcy court action is complete.