Can Rental Debt Be Discharged Through Bankruptcy?


Many debts can be discharged through bankruptcy, but not all debts qualify. Certain debts are not dischargeable even though the debts in question are likely the cause of a great deal of financial stress and anguish for the debtor.

Can bankruptcy be used to discharge debt from a lease?

Chapter 7 Versus Chapter 13 Bankruptcy

How the rental debt will be managed depends first on the type of bankruptcy being filed. Chapter 7 bankruptcy is a liquidation case.

The bankruptcy trustee is responsible for gathering and selling all “non-exempt” property (if there is any) and using the sales proceeds to pay back creditors. Certain debts that have an accompanying asset are considered “secured” and generally are not discharged.

Chapter 13 bankruptcy is a reorganization case in which the debtor prepares a plan for re-payment of debts.

Chapter 7 Bankruptcy And Apartment Rental Debt

In a Chapter 7 bankruptcy case, filers may receive a discharge of rental debt obligations for houses, apartments, cars, etc. Under Chapter 7 however renters are not given the option to repay any past-due rent.

Debtor may assume the lease, giving the tenant approximately 30 days following the filing of the bankruptcy petition to repay the past due rent. If the tenant/debtor can do this, then they can stay in the apartment or rental.

However, most debtors that come into Chapter 7 bankruptcy have little to no cash flow, and they are going to have a difficult time finding the money to pay the past due lease current.

The debtor also has the ability to reject the lease. If this happens, the tenant/debtor is not obligated to continue paying rent. The past due rent would be discharged at the end of the bankruptcy case, but the tenant is not necessarily protected from being evicted.

The landlord will also have the right to ask the court for authority to get eviction proceedings started quickly.

Chapter 13 Bankruptcy And Rental Debt

Once a debtor files for Chapter 13 bankruptcy, they can either assume the lease and keep it, or reject the lease and move out. When a renter decides to keep the lease, this means they will need to pay all past rent payments.

At the same time, the renter needs to continue making regular on-going monthly rental payments and not fall further behind. Otherwise, if the renter does not keep the rent current, the landlord can ask the court to lift the automatic stay to allow for an eviction proceeding.

Eviction Has Already Started

If a writ of eviction has already been issued before the debtor filed for bankruptcy, the timing of the bankruptcy case is key. The bankruptcy trustee and court may view the situation and decide that the lease was already terminated at the time of the filing. They may then force the tenant to move out of the house or apartment.

However, if a final order evicting the tenant has not been issued, the bankruptcy automatic stay may temporarily stop the eviction process, protecting the tenant from losing their housing.

Benefits to Stopping Evictions

The benefit to a debtor from rejecting a lease instead of losing it to an eviction is the amount of legal fees and costs associated with an eviction. Further, having a recent eviction on the debtor’s credit report could prevent them from being allowed to lease another apartment or home in the future.

Bankruptcy proceedings may limit the debtor’s to purchase a home in the future. But many times, the fact that the debtor was responsible enough to go through a bankruptcy process, specifically a Chapter 13 filing, can help them getting a home.

However, having a recent eviction case on the debtor’s record could make this hurdle even harder to jump.

Does Filing for Bankruptcy Clear Eviction?

Bankruptcy can potentially discharge your rental debt and stop an eviction in progress. However, a bankruptcy filing will not remove your eviction from your credit record. Information on evictions are reported directly to sites that assist landlords.

Evictions can stay on a credit report for up to seven years. If an eviction lawsuit was involved, this can also be reported to the public record.

Contact Us for a Free Consultation

An experienced Texas bankruptcy lawyer can help you determine the best way to handles leases and can help address any concerns you have about the bankruptcy process.

Please call the Law Office of Marilyn D. Garner at 817.381.9292 for a free consultation to discuss how bankruptcy may help you. Additionally, We proudly offer  bankruptcy services in Grand Prairie 

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