Use Chapter 13 to catch up on back rent that piles up during the eviction moratorium, so that you can stay in your rental long term.
Our blog post two weeks ago was about a recent federal order temporarily stopping certain residential evictions throughout the country. Check out that blog post to see who is covered and how to take advantage of this eviction moratorium.
Asserting Your Right Not to Be Evicted
Assuming you qualify, you must act to assert your right not to be evicted. This mostly means you need to print up, review, sign, and give your landlord a two-page declaration form. Here is that Declaration form.
The Declaration starts with a quick explanation for how to use it, then lists the qualifying conditions you must meet. You have to be truthful about qualifying for the conditions, so read those carefully. You sign under penalty of perjury. So, “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”
Also, every adult renter included on “the lease, rental agreement, or housing contract should complete” it. Then get it to your landlord.
Important: as broad and clear the moratorium may seem, it is being interpreted differently by different state and local judges. For example, some judges believe that landlords can’t file eviction lawsuits at all. Others believe that they can be filed and processed, with only the eviction itself stopped by the moratorium. See this New York Times article about these inconsistencies: How Does the Federal Eviction Moratorium Work? It Depends Where You Live.
The Challenge Created by the Moratorium
Let’s assume you qualify and deliver the Declaration to your landlord. The big problem with the eviction moratorium is that it is temporary. It expires on December 31, 2020. Just as big of a problem is that it does not forgive any rental payments whatsoever. So even if you do everything right, you’d owe a pile of rent money on January 1, 2021. (You’d owe the piled up rent earlier if you earlier reach the point when can afford to pay rent again.)
So let’s now assume that you could afford to start paying your monthly rent in January 2021. (Or at any point earlier.) What to do with the months of back rent you owe then?
One option: move somewhere else and forever write off (“discharge”) the back rent with a Chapter 7 “straight bankruptcy.” See our last blog post about that, and other possible ways Chapter 7 may help.
But the challenge is if you really want to stay in your rental long term. Chapter 7 does not give you a reliable legal mechanism to pay the unpaid rent. Is there’s a better solution?
The Opportunity Created by Chapter 13
At the heart of a Chapter 13 case is a 3-to-5-year partial-payment plan. You and your bankruptcy lawyer prepare and file this plan at the bankruptcy court. Here’s the court’s official Chapter 13 Plan form.
Just as in Chapter 7, under Chapter 13 you have to choose whether to “accept” or “reject” your rental agreement. If you want to stay in your rental you have to “accept” the agreement and say so in your proposed plan. See Part 6 (starting on page 6, titled Executory Contracts and Unexpired Leases) of the Chapter 13 Plan form.
The crucial benefit under Chapter 13 is that generally you can catch-up on the accrued late rent payments over time. The payment plan that you submit contains the terms of repayment of those accrued rent payments. You could theoretically stretch those catch-up payments over the 3-to-5-year life of your plan.
The real beauty of Chapter 13 is that once your bankruptcy judge formally approves your payment plan, your landlord is forced to accept your repayments terms.
Landlord Challenges to Your Terms
Your landlord could object to the payment terms, before your Chapter 13 plan gets court approval. But you have a number of advantages.
First, your filing of the Chapter 13 stops the landlord from being able to proceed with eviction. This is true even if the national eviction moratorium had expired by then. The “automatic stay” imposed by any bankruptcy filing stops virtually any eviction proceeding in its tracks, at least temporarily. So time is more on your side.
Second, the landlord has the burden of objecting. If your plan shows that you can resume regular rent payments and presents a reasonable schedule for catching up on the late payments, the landlord may decide to accept your proposal. The landlord thereby avoids paying out more attorney fees. Under your proposed plan the landlord gets rent payments every month starting right away. Your plan should give the landlord some confidence in getting the back rent paid. The alternative is losing it all, and maybe another few months of no rent payments if you’re forced out.
Third, if the landlord does object to what you and your bankruptcy lawyer propose, there is often room for compromise. You have a lawyer on your side to look out for your interests. You’d likely be able to amend your Chapter 13 plan to satisfy both sides.
More Chapter 13 Advantages
The way Chapter 13 works is that usually you pay “general unsecured” debts only to the extent that you can afford to do so. “General unsecured” debts are ones like medical bills, most credit cards, and such. Most likely you will want to pay your rental arrearage ahead of your “general unsecured” debts. Indeed you’ll be forced to if you want to stay in your rental.
The nice thing is that in many situations the money you need to pay for the past due rent reduces the amount you pay on your “general unsecured” debts. That’s because you can only afford to pay a certain amount to all of your debts over the course of your case. Your budget dictates that amount. The catch-up rent in effect comes out of what you’d otherwise have to pay the “general unsecured debts.
Another Chapter 13 advantage is that you can often delay paying certain debts until you’re better able to do so. For example, you may be able to pay less monthly on the back rent for several months, then more later. This may be because you anticipate increase in income, such as when a spouse returns to work. Or it may be because you anticipate a future reduction in expenses, such as paying off a vehicle loan.
Finally, Chapter 13 is flexible in other ways. You’re not necessarily tied into your payment plan forever. Its terms can shift with your changing financial circumstances even after it’s approved by the court. Or if you change your mind about staying in your rental, you can amend the terms of the plan. Or you can even convert into a Chapter 7 case and likely discharge whatever you then owe to the landlord.