Tenant On Chapter 13
I checked my prospective tenants credit and she is in a Wage Payment plan. She is still obligated to pay her rent on time - right ? What if she proceeds further to file Chapter 7? What are the ramifications for me as a landlord ? Can someone give me guidance ?
You probably couldn't have a much better tenant, financially, than one IN a BK currently. She's got to pay her rent & other bills with no games, or the BK trustee/court will be all over her.
Just recently got an interesting national mailing from an association of collection agencies. One of their slick brochures which they've sent out, apparently in the thousands, included this jewel:
"If your payor is in a 13, and sends you money for YOUR debt, even if the Trustee then tells you to return it, DO NOT DO SO!
Reply to the Trustee, disputing his order and demanding a hearing. Rarely, to the point of almost unheard of, is the payee forced to return the $$$, at least all of it, and about 95% of the time, gets to keep it all...although it is really a total preference, in the face of all the other creditors."
So be happy with her as your tenant, but make it clear that you'll be in the middle of the BK instantly if she starts playing games with you. She won't want that, and will probably work hard to pay you as agreed.
Ongoing lease payments are usually made religiously by Chapter 13 debtors, because they have very few options in the housing market, and because the Trustee does hold them to their budget. Debtors must stick to the Ch.13 plan and budget filed with the court or risk dismissal.
Ch. 13 debtors are not allowed to incur any post-petition debt without court approval, So, if they stumble into trouble and fall behind on their rent or lease, they may not simply "add" those debts to their existing BK, they must handle those debts outside the bankruptcy, and possibly after the completion of the plan (meaning as a landlord you can collect for “post-petition” debt).
Now, if the debtor "converts" their case to one under Chapter 7, and are behind on their rent or lease, they may be able to discharge the delinquent rent owed to you, as the order for relief under chapter 7 is not retroactive, but includes debts incurred before the date of conversion, rather than the original petition date, so there is some risk involved there.
Thanks for that informative posting Utah_Bkatty
Followup question - Once they file Chapter 7 what are the ramifications relative to rent - are they obligated to pay the rent or should the landlord allow them a holiday period of 6 months or so ? or do they pay only part of the rent ?