My Tenant is Filing Bankruptcy..
We provide here a few questions that have been posted in the Community Forums and our answers to them.
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Q1
One of my tenants recently phoned to tell me he is filing bankruptcy under Chapter 7. He has 5 months to go on a one-year lease. He is current with his rent. I’m curious if I need to contact the court. Will a bankruptcy allow him to avoid making future payments on the lease?
A1
In general, the filing of bankruptcy affects only debt, that is, unpaid rents, and does not impact the responsibility of the tenant to pay rent after filing. However, bankruptcy law is somewhat complex and was revised effective 10/17/05, mostly in favor of creditors including landlords.
There may be ways in which failure of the tenant to pay future rent would impact your ability to evict without bankruptcy court action, so you should immediately seek legal advice if rent is not received on time during the period when the tenant is under court jurisdiction. In the meantime, you might consider seeing if the court office itself or the trustee for the particular case will provide additional information.
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Q2
I have often had difficulty obtaining verification of employment. What’s the best procedure?
A2
In recent years it has become ever more difficult to get employment information from employers because of the fear of lawsuits. Some employers will not even admit over the phone to knowing their own employee. Many will not give out any information without written authorization from the employee and will only respond to a written request, sometimes requiring that it be on the employer’s own form. Employers may be unwilling to respond via phone, fax, or email.
It is also important that the form be returned directly from the employer rather than passing through the hands of the applicant if possible. If it does pass through the applicant’s hands, you will need to verify the legitimacy of the returned form.
One option is to leave the burden of verification up to the applicant and only require that the employer mail it or fax it to you or that the applicant authorize the employer to respond to your phone call to a phone number which can be verified as legitimate.
As a landlord, you want to determine whether or not the applicant has sufficient income to afford the rental property and that they will pay the rent when due. However, this can usually be accomplished by means other than verification by employers, in ways that usually provide more certainty.
In general, a landlord can request whatever financial information is desired in order to confirm the applicant’s ability to pay under whatever legal, reasonable, and logical criteria the landlord uses, so long as the same requirements are demanded of all applicants.
Employment and income documentation can consist of requiring the applicant to produce the last several recent paycheck stubs. Review the pay stubs to verify that the applicant’s name, current address and Social Security number are the same as shown on the application and, if not, determine the reason for the fact.
If another source of income will be used for rent payment, verifiable documents, appropriate to the source of income, should be requested. Verification of non-employment income must be considered on a case-by-case basis. Verification of non-earned income – including interest, dividends, and other investment cash flow – and of entitlement items – including disability, Social Security, and private retirement – are all relatively easily verified because the recipients are provided official statements of the amounts.
Self employed individuals can be asked to provide copies of their tax returns. Keep in mind that the tax return will usually not be providing current information, as depending on the time of year, it may possibly be as much as 15 months old. It is usually best to consider multiple documents that together confirm what the applicant puts on the application form.
Finally, keep in mind that a good credit record, absence of an eviction record, and a satisfactory report from previous landlords are usually more important than the details of employment. Many tenants pay their rent on time and take good care of rental property with very minimal income, while many others fail to pay rent and/or trash properties in spite of substantial incomes.
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Q3
Am I required to have smoke detectors in every bedroom of my rental units, or is that the responsibility of the tenant?
A3
Specific requirements will vary from state to state, even city/county to city/county in regard to whether it is the landlord’s duty to provide detectors and where detectors must be installed. Your insurance company may also have requirements.
It has become increasingly common over the past couple of decades that it is the landlord’s responsibility to provide detectors in accordance with the applicable law. As a practical matter, I would put them in every bedroom and other living areas of each unit even if not required by any law. Battery operated detectors can be purchased in bulk for under ten dollars each (often including batteries). The safety protection that doing so provides the tenants and the liability protection it provides the landlord is well worth such a minor expense and one then needn’t worry about what rooms are covered by any specific requirements of any level of jurisdiction.
You should be sure that (1) you install new batteries whenever units were vacant, (2) your check-in list includes testing of the detectors, and (3) your lease agreement clearly makes tenants responsible for regular testing and for replacement of batteries when needed during their tenancy.
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Additional Information
Most of the issues discussed in these Q&A’s are covered in considerably more detail in our eCourses and/or in our Mini Training Guides.