What Happens When an Apartment Goes Bankrupt?
- As a tenant, you have rights that protect you while the owner of the apartment building goes through the bankruptcy process. The Protecting Tenants at Foreclosure Act is a Federal Law signed by President Barack Obama as part of the Helping Families Save Their Homes Act of 2009. Under this act, as a tenant you must receive a 90-day notice before an eviction resulting from a foreclosure or bankruptcy. The act also requires the owner of the apartment building to maintain the complex during the bankruptcy proceedings. Additionally, if the owner of the building does not pay for maintenance and you pay for the maintenance out of your pocket, you can deduct the amount you have paid from your rent.
- When the landlord files for bankruptcy the trustee of the bankruptcy case can either assume or reject the lease. If the trustee assumes the lease, the existing terms and conditions of the lease will continue. If, on the other hand, the trustee rejects the lease, your lease will effectively cancel. If the trustee allows you to finish your lease, you must continue paying your rent regularly to the trustee or assigned payee.
- The type of bankruptcy filed will dictate if the owner of the apartment building will keep the property. Under a Chapter 7 bankruptcy, the debtor's debts are discharged and the court appoints a trustee to liquidate the debtor's assets. Since an apartment building is an investment property, in most cases, the trustee will sell the apartment building to pay back creditors. On the other hand, in a Chapter 13 bankruptcy, the debtor reorganizes his debt through a repayment plan. Under a Chapter 13 bankruptcy, the owner of the apartment building may keep the investment property, allowing you to continue renting your apartment under the terms of your existing lease.
- As a tenant, you have no obligation to the owner of the apartment building other than paying your rent and performing any other conditions or obligations specified in your lease agreement. The bankruptcy is a legal proceeding involving the owner of the apartment building, his creditors and the bankruptcy court. You have no special obligations to the owner of the apartment building after the bankruptcy proceeding begins.