Navigating Bankruptcy and Evictions
As shifting economic pressures impact the housing market, keeping track of broader financial trends is essential. According to the Administrative Office of the U.S. Courts, non-business bankruptcy filings rose 11.2 percent in 2025. This upward trend directly affects the rental industry, as a tenant’s bankruptcy filing not only impacts their ability to pay rent, but often restricts a landlord’s legal ability to proceed with an eviction.
What is bankruptcy?
Bankruptcy is a procedure under the law in which a debtor (person or company that owes debts) can seek to resolve their debts formally with court assistance and with certain protections from creditors. The two types of bankruptcy that are most relevant to housing providers are Chapter 7 and Chapter 13 filings. When a tenant files for Chapter 7, they are seeking a discharge of all debts owed prior to the filing date so as to “wipe the slate clean.” When a tenant files for Chapter 13, they are seeking to create a payment plan to pay back their debts owed as of the filing date over time.
How does bankruptcy impact evictions?
When a tenant files for bankruptcy, federal law protects the debtor via immediate implementation of an automatic stay or “pause.” This stay prohibits creditors from seeking collection of debts or taking legal action against the debtor – including pursuit of eviction. If you violate the stay, the debtor can pursue sanctions against you and the court may award damages and penalties.
What should I do if I’m aware a tenant has filed bankruptcy?
The property should stop eviction efforts and consult with counsel prior to proceeding any further. Taking any action to collect or evict when the automatic stay is applicable can be an actionable violation of federal law with liability exposure.
Should I deny payments from a tenant that is in bankruptcy?
A tenant that is in active bankruptcy will likely have an outstanding balance. In some circumstances, these tenants may attempt to submit a payment to the landlord that does not include the outstanding balance, and that is intended to simply pay rent for the current month. If a landlord denies this payment as partial and demands payment of the full ledger balance, such conduct could be construed as a violation of the automatic stay. It is important to note that in some circumstances, a tenant may be required to submit that partial payment, and a landlord may be required to accept it in order to not run afoul of the automatic stay and incur sanction liability. If you have a tenant in bankruptcy and have questions as to your proper course of handling, please consult with counsel prior to taking action.
Can I still evict a tenant in bankruptcy?
You may be permitted to move forward with eviction if the automatic stay is not in place. In some circumstances, the automatic stay is limited in duration, or may not even be applicable at all. An Order from the Bankruptcy Court clarifying the presence of the automatic stay (or lack thereof) may need to be obtained before proceeding with eviction. If the automatic stay is applicable, your recourse is to pursue a motion for relief of stay with the Bankruptcy Court and obtain an Order authorizing you to proceed. You cannot proceed without first obtaining this Order if the automatic stay is in place.
How can I pursue past due rent when they leave a remaining balance?
The property can refer to collections, report to credit, or file suit and seek to obtain a judgment against the former tenant in a court of law. Once judgment is obtained, they can proceed with enforcing the judgment via garnishment of wages, bank accounts or other execution processes.
Legal Disclaimer
The information provided is based on preliminary review of a law that has recently become effective and accordingly, has not been afforded an opportunity to be formally interpreted by the judiciary – both as to practice and compliance. To this end, this information is subject to change as such interpretations are provided and as new developments arise. The information provided in this document does not, and is not intended to, constitute legal advice; instead, all information in this report is for general informational purposes only. Information in this document may not constitute the most up-to-date legal or other information. Viewers of this material should contact their attorney to obtain advice with respect to any particular legal matter. No viewer of this material should act or refrain from acting on the basis of information in this presentation without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this presentation does not create an attorney-client relationship between the reader and Karsaz Law. All liability with respect to actions taken or not taken based on the contents of this presentation are hereby expressly disclaimed.