Requirement to Pay Rent After Landlord Files Bankruptcy

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Beginning with the experts in this matter, they mostly recommend putting the Landlord and the bankruptcy aside, just for a little while.  The renter has a contract with the “owner of the property” to pay a set amount of dollars each month on a specific date.  The renter must continue to pay that amount by that date to show proper diligence in wanting to retain the living space being rented.  This being said, now bring the bankruptcy and the landlord back in.  Because the landlord filed for bankruptcy, if it is Chapter 7, the property may be seized and sold.  The renter is listed as a creditor to establish a relationship in the bankruptcy as the renter has a vested interest in the proceedings because the renter paid money for an asset, the living space, and that asset may be removed.  Does the landlord owe the renter-creditor any refund in that case?  It is unclear, but the monies paid as the “last month’s rent” is supposed to be in escrow and is due back to the renter if the rented space is in good shape at the end of the renting.  The renter can attend the 341 hearing to state that rent for the month was paid, and that the renter is due to pay more money, but is not sure to whom the money should go, and will likely escrow the rent until the ownership is clarified.  The renter can also claim that the landlord holds the last month’s rent in escrow and is due back to the renter at the end of the current rental contract.

Next step for the renter is to establish an escrow account with one’s favorite bank and pay the rent to that account until told officially who the owner is coming out of the bankruptcy.  Pay no one until it is crystal clear to whom the rent now goes.  Demand proof of ownership.  If a question remains, consult an attorney.  It was unclear if the trustee in the landlord’s bankruptcy could provide any help in this matter.  Be prepared to move in the event that the property is seized and sold, and the new owner wants no renters, or will raise the rent.  Get a signed receipt, even notarized, for the handing over of the escrowed back rent.

If the bankruptcy that the landlord files for is Chapter 13, then the relationship should not change, the monies that the landlord holds as a part of the contract should still be in escrow – demand proof.  If everything is status quo, the renter can continue to pay rent as normal, because the landlord will retain ownership of the property at the end of the bankruptcy.  If the renter learns that the landlord is in financial arrears with a mortgage company for the property, the renter should again demand proof that the escrowed money the landlord holds is still in good stead.  Otherwise, the renter can escrow one month or two months’ rent in its place.  The renter has to make it very clear that this is the reason for this escrowing and file that reason with the bank that holds the escrowed account.

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