Hindsight is 20/20, at least that is what one Landlord might say after fighting for multiple months to regain possession of his property from a non-paying Tenant. In this case, the Tenant strategically filed a bankruptcy action the day before the Landlord was set to regain possession of his property. The result –possibly having to wait six months to just get possession of his house from the Tenant during the pendency of the bankruptcy action. This Landlord was dealing with a serial bankruptcy filer, someone who knows how to use the system to their personal advantage. Once a bankruptcy action is filed, an automatic stay goes into effect which essentially stops (“stays”) all pending actions, including eviction actions to regain possession of your property. If a non-paying Tenant files bankruptcy while living in your home, they will be able to continue living there (making no rent payments) until the bankruptcy case is resolved. Below are 3 ways a Landlord can protect themselves from the Tenant bankruptcy scare in the future:
(1) Creditworthiness and financial stability are crucial aspects for a Landlord to consider when evaluating a potential Tenant. Ask yourself: Can this Tenant afford these monthly rental payments based on their past financial history? There should be no hesitation here. Making this determination early on will save you a lot of time, money and the value of your property in the future.
(2) Actually conduct comprehensive background searches. A one-page credit inquiry or even worse, a Tenant’s “word” on their financial soundness, will simply not suffice when you are considering to put your property in a stranger’s hands. Also, conduct a search on any person that is going to be residing at the property for more than 2 weeks. This is an important procedure that must be done prior to Tenants/occupants residing at your property.
(3) Lastly, consider having an attorney review or draft your Residential Lease Agreement to assist in protecting your interests before permitting a Tenant to move-in. Trust me, hiring an attorney to do an initial review on your lease in the early stage is far more cost-effective than having to retain after the Tenant stops paying rent, or even worse, files bankruptcy.
So, how does this story end? With a lot of lessons learned and with our firm’s assistance, a new, suitable Tenant to lease the Landlord’s property.
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