Landlord and Tenant Rights When Bankruptcy Is Involved
If you’re struggling with debt and considering filing for bankruptcy, one of the many worries keeping you up at night might be the possibility of being evicted from your home due to unpaid rent. You might wonder: If you file for bankruptcy, can your landlord still evict you for falling behind on your rent? The answer may surprise you.
What Happens When You File For Bankruptcy?
In Canada, filing for bankruptcy and being discharged eliminates most ,or all, unsecured debts, such as credit card bills, lines of credit, personal and payday loans, and income taxes owed to the government. This gives you a fresh start to rebuild your credit and financial health. However, many of your assets must be surrendered to a Licensed Insolvency Trustee (with certain exemptions) and will be sold to cover some of your debts. These can include your home or car (depending on how much equity is in them) and other valuables like collections, artwork, designer clothing, and investments. Assets that are jointly held with someone else, such as your spouse or a family member, may also be seized. In other words, bankruptcy is not to be undertaken lightly – it should be a last resort when your debts are so overwhelming that you will never be able to pay them off in a timely fashion.
Can You Be Evicted For Rent Arrears After Filing For Bankruptcy In Canada?
No. Once you file for bankruptcy, any legal proceedings that are already in progress against you, such as a notice of eviction or a lawsuit, must be stopped. If you have declared bankruptcy and have not yet been discharged from it, your landlord cannot begin eviction procedures against you. The landlord will be notified of this fact and your rent arrears will be discharged along with your other debts.
What About a Consumer Proposal?
If you choose to file a consumer proposal instead of a bankruptcy, the same rules apply – no creditors can bring or complete legal proceedings against you during the entire term of the proposal. However, in this case, you will agree to repay a portion of your debts including your rent arrears.
How A Stay of Proceedings Works
Whether you file for bankruptcy or a consumer proposal, the result is the same: a stay of proceedings is initiated. That means any legal action that is currently in progress against you must be halted immediately and no new legal action can be started by unsecured creditors. The proceedings that were stopped by a bankruptcy or proposal cannot be resumed once the bankruptcy or proposal is discharged. Any debts that creditors were attempting to recoup through those legal actions will be discharged or partially repaid along with your other debts through the bankruptcy or consumer proposal process. A stay of proceedings also means your wages can no longer be garnished and creditors may not call or contact you directly for repayment of the debt.
Can You Stay In The Rental Unit After Filing For Bankruptcy?
Yes, you can stay in your rental unit once you file for bankruptcy, but keep in mind that the situation will likely have a negative effect on your relationship with the landlord. They may also require you to pay your rent per diem (on a day-by-day basis) going forward. Also, any further rent arrears you accumulate after the bankruptcy filing are your responsibility and will not be discharged by the bankruptcy, so if you do stay put, make sure you can pay your rent going forward.
What Are the Landlord’s Responsibilities During Bankruptcy?
Once they become aware of your bankruptcy, the landlord cannot continue to pursue the tenant for the rent arrears. The landlord may file a Proof of Claim with the LIT to participate in the bankruptcy. To do so, the landlord will need to calculate the amount of arrears you owe up to the bankruptcy date and provide this documentation to the LIT attached to the Proof of Claim form.
Once you file for bankruptcy, you can no longer be evicted from your rental unit for unpaid rent. However, you remain responsible for continuing to pay current rent if you remain in the unit and can be required to pay it day-by-day going forward. Bankruptcy can make a relationship with a landlord even more difficult, and some people do decide to vacate their rental unit after filing. But the stay of proceedings gives you some time and breathing space to consider your options. Your LIT can help you determine the best way forward.