Are Rent Arrears Cleared by Bankruptcy?

Rent that is past due, or in arrears, is not cleared by bankruptcy unless you decide to leave the apartment or rental home and move on. Bankruptcy stops eviction but only temporarily in some cases. Eventually you will be evicted if you fail to pay the landlord. Some people with legitimate financial problems use bankruptcy to avoid being tossed out as they look for ways to pay past-due rent. Others manipulate the system by using bankruptcy to avoid eviction as they look for another place to stay.

The Automatic Stay

A legal injunction in bankruptcy, called "the automatic stay," stops evictions. The automatic stay halts nearly all debt collection, including enforcement of judgments and garnishment of back accounts and wages. The stay is signed by a judge and is one of the most powerful features of bankruptcy. Generally, the automatic stay gives people 30 to 60 days to avoid eviction. Eviction can take place after that if the tenant has not paid the past due rent or made special arrangements with the landlord to pay by a certain date.

Breaking the Lease

Bankruptcy allows the tenant to break the lease without financial penalty and simply move on. Most rental agreements include a penalty for early lease termination, with any early termination fee eliminated in bankruptcy along with past-due rent payments. Delinquent rent payments are treated as an unsecured debt in bankruptcy.

Landlord Rights

Landlords can get around the automatic stay by requesting that the injunction be lifted by the court to allow eviction. In this situation, the landlord argues that the tenant filed for bankruptcy simply to avoid paying rent. A judge will hear the case and offer a ruling. Typically, the bankruptcy court sides with the debtor and continues to provide protection under the automatic stay unless there is clear evidence that the debtor is trying to manipulate the system.

Credit Reports

Credit reports and court records list bankruptcies and evictions. Having both on your record can make it really tough to find another place to stay. Other landlords will be reluctant to rent to you because of your past financial problems. It's best to avoid eviction -- and possible bankruptcy -- by explaining your situation to your landlord and asking for more time to pay. Bankruptcy should only be used legitimately and as a last resort.

Costs

As of 2011, the cost for filing Chapter 7 bankruptcy is $299 and $274 for Chapter 13. Chapter 7 is the fastest form of bankruptcy, lasting just a few months as it eliminates debt. Chapter 13 requires a payment plan lasting three to five years. Usually, Chapter 7 is available only to people with low or modest incomes.