The 2005 Bankruptcy Abuse Prevention and Consumer Protection took effect on October 17, 2005. The congress passed the act, and then-President Bush signed the act in April 2005. The act was a major reform of the bankruptcy system. The act changed the bankruptcy system in several ways, including tightening the bankruptcy eligibility criteria. The act makes it easy for landlords to evict bankrupt tenants from their properties.
Provisions of the Act
Under the October 17, 2005 bankruptcy act came into effect, persons wishing to file for bankruptcy under chapter seven have to meet some eligibility requirements often known as the means test.
According to the act, a tenant whose current monthly income is lower than the state's median income may file for bankruptcy under chapter 7. However, if a tenant can afford to make monthly debt payments of one hundred dollars ($100), and whose monthly income is above the state's median income cannot file for tenancy bankruptcy under chapter 7. Instead, such a tenant has to file for bankruptcy under chapter 13.
In evaluating a tenant's ability to pay $100, or six thousand dollars ($6,000) over five years, a formula that considers the tenant's total debt, monthly expenses, and monthly income are adopted.
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a tenant cannot file for bankruptcy under chapter 7 or chapter 13 if he/she is a tax defaulter. When filing for bankruptcy, a tenant may be required to show proof of their income and provide federal tax returns for the previous year. If the tenant has defaulted tax payment for the previous year, he/she must first pay outstanding taxes before the bankruptcy process can commence.
The Act may also require tenants filing for bankruptcy to undergo some form of credit counseling. The counseling has to take place in a government-approved program. Once the bankruptcy proceedings are complete, but before the tenant's debts are discharged, the tenant may have to take part in a government-approved training program on financial management.
It is common for tenants facing financial constraints to declare bankruptcy. The steps a landlord takes while evicting a tenant may vary depending on if the landlord had sought possession of the rental in court before the tenant filed for bankruptcy:
Tenant Bankruptcy After Landlord Wins Possession
If a landlord sues a tenant, request for eviction, and wins a judgment for rental property possession before a tenant files for bankruptcy, the landlord may go ahead and evict the tenant. The tenant cannot stop the eviction even if he/she files a petition for bankruptcy and attempts to halt the process of eviction. Under the old bankruptcy law, tenants would still stop the eviction by filing for bankruptcy at the last minute. Under the current law, a landlord can request the bankruptcy court to lift the automatic stay and proceed with the eviction.
Some states are exceptional, especially when handling bankruptcies resulting from an inability to make monthly rent payments. By filing a certification, paying both forward and back rent, a tenant can still file bankruptcy at the last minute and stop an eviction. However, a landlord may still object to the tenant's certification and secure a hearing session in court. If the landlord can prove to the court of the invalidity of the tenant's certification, the court may lift the automatic stay and advise the landlord to proceed with the eviction.
Tenant Bankruptcy Before Landlord Wins Possession
If by the time a tenant applies for bankruptcy, the landlord has not won possession, the landlord cannot deliver a termination notice to the tenant or initiate an eviction. The landlord cannot evict the tenant even if the tenant fails to pay rent or he/she violates other terms of the landlord-tenant agreement. After filing for bankruptcy, a tenant enjoys an automatic stay that can only be lifted if the landlord goes to court to have the tenant's automatic stay uplifted.
However, in some instances, a landlord may still be able to conduct a successful tenant eviction even if the tenant petitions for bankruptcy before the landlord wins possession. For instance, if the tenant is using unlawful products and drugs and engendering the occupied rental property, a landlord can evict him/her even after the tenant petitions for bankruptcy. In this case, the landlord will not have to request the court to lift the tenant's automatic stay before initiating the eviction. Instead, the landlord prepares a certification that outlines that the tenant has used prohibited drugs in the property or damaged/endangered the rental property. The land may also file the certification if the tenant hosts guests who use drugs or endangers the property.
If the tenant does not object to the eviction notice after fifteen days of receiving the notice, the landlord can proceed with the eviction. The bankruptcy court may hold a hearing if the tenant files an objection against the eviction notice.
Even if the tenant is not behind in rent payments, and has not violated the lease agreement, filing for bankruptcy may affect the tenancy. Upon filing for bankruptcy, the bankruptcy trustee may terminate the lease or let the tenant keep the house. If the trustee decides to let the tenant keep the house, a landlord has the right to request the court for a proof of the tenant's ability to pay future rent even if the tenant has no history of rent default. If the tenant is unable to pay rent at a future date, the landlord can always request the court to lift the automatic stay and then terminate the lease and possibly evict the client.
