We are screening candidates for our 3BD condo. We have a candidate who is going through a divorce. She admitted that in her situation she's likely to file for bankruptcy in the near future to protect herself following divorce proceedings.

If she DOES declare bankruptcy, does that potentially obsolve her from the obligations stated in our lease?! Not sure of the extent the bankruptcy laws and what effect they may have on a lease.

Please comment -

Thanks,

Once she files, she can not file again for 7 years, I believe.

Well, I am not an attorney, but I did attend a Colorado collections seminar and the instructor there indicated that if a tenant files bankruptcy while in a rental unit and they list the landlord as a creditor, they have some protection that complicates a matter of eviction if they do not pay. The instructor said it was dependent upon jurisdiction if the judge issues a stay on the eviction or not because you are dealing with two courts ... a bankruptcy court and a county court.

In a bankruptcy case, the tenant will report her unexpired lease with you to the bankruptcy court on her statement of financial affairs. She'll have the option of abandoning the lease or maintaining the lease.

Everything is fine and dandy as long as she pays. If she decides not to pay her rent, you can't just walk into summary court and evict her - you have to petition the court to lift the automatic stay pertaining to the unexpired lease. If you don't know how to do this yourself, it could cost a couple of hundred dollars to get it done. It won't cost you thousands in legal fees, but if she's an active Chapter 7 you could be out thousands in rent by the time you finally get her out.

The good news is that a Chapter 7 bankruptcy is fairly cut and dry and she should be through the whole process within 90-120 days unless she commits fraud, her creditors object, or she has enough income to be forced into a Chapter 13. If she lapses into a Chapter 13, you don't want her as she'll be in repayment status for three to five years and all of your payments will come from a grumpy old trustee who really doesn't care whether you get paid on time or not.

As stated above, when she files BK, she has the right to reject the on-going lease or to keep it. but if she just signed on with you, that is not a major concern. After all, she doesn't want to move again right away, right?

There are three other scenarios.

(1) She is paying rent on time, and continues to do so. BK is not an issue to you.

(2) She is not paying rent when she files BK, and you are either evicting or about to. The filing of BK immediately stays your eviction process. You need to go into BK court and get permission to evict. Permission will be granted, it will just be a slight delay in your eviction. Only real problem is that if you don't know how to do it, it will cost a few hundred, and a one week delay is money you are not making. You won't get the rent that was due before the BK was filed, but you will recover possession.

(3) She is paying rent, files BK and then stops paying rent. Similar to #2 above, except that BK judge might really ream her and get you paid without the need for the eviction. Post-BK living expenses are considered "administrative expenses" and have priority over the creditors that were owed money at the time of the BK filing. You will recover all of the post-BK rent.

She must not qualify if her bills (including any mortgage) is added to the cost of running another household (in your rental). She's told you she will have financial difficulties in the near future. This is a no-win situation that will have you on nerve's end waiting to know IF she will file bankrupcy and IF you will somehow be drawn into the drama of bankrupcy court.