A fairly regular situation confronted in bankruptcy court involves a debtor who owns rental property in the possession of a tenant. There are specific tenant rights available when a landlord files for bankruptcy. A tenant must familiarise herself with these crucial rights in the aftermath of a landlord seeking bankruptcy protection.
Historically, tenants ran a real risk of being dispossessed of their homes once a landlord filed for bankruptcy. However, in recent years a series of significant legal provisions has better protected the rights of a tenant's possession of property after a landlord's bankruptcy commences.
The primary function of tenant rights when a landlord files bankruptcy is to ensure the renter of uninterrupted use and possession of the property despite the bankruptcy case.
Typically, the tenant possesses the premises until the previously executed lease expires. However, with commercial property and longer lease terms (beyond one year), the bankruptcy court terminates the lease agreement but provides the tenant reasonable time to vacate.
The bankruptcy court will take punitive steps against a mortgage lender, other creditors or debtors that interfere with the tenant's rights during the course of a bankruptcy case.
A common misconception on the part of a tenant is that she stops making payments during a bankruptcy. The tenant must continue to comply with all lease terms, including making rent payments, or she will be evicted.