Senate-Passed Bill Stops Tenant, Home Owner Bankruptcy Abuse
The nation’s home builders last week applauded Senate passage of S. 256, the “Bankruptcy Abuse Prevention Act of 2005,” noting that the measure contains two beneficial provisions for home builders.
“The legislation strikes a fair balance between the rights of tenants and property owners, and it also provides sufficient safeguards for home owners to protect their property in the event of a bankruptcy filing,” said NAHB President David Wilson.
The bill would stop an abusive practice under current law in which delinquent tenants facing eviction can file for bankruptcy, triggering an automatic stay that requires the property owner to stop all eviction proceedings — even if the tenant is damaging property or involved in illegal activity. This allows a tenant to remain in a rental property for months without paying rent until a bankruptcy judge lifts the stay.
“These tenants drive up housing costs for the vast majority of residents who pay their rents on time,” said Wilson. “At the same time, they are also threatening the economic viability of rental properties, particularly subsidized housing properties that have thin operating margins.”
The bill would establish a clear procedure for the speedy resolution in federal bankruptcy court of cases in which a tenant has defaulted on the lease agreement for failure to pay and then files for bankruptcy, while providing debtors with due process protection against unfair evictions.
The measure also stipulates that home owners who filed for bankruptcy within 40 months of buying a home would be able to protect no more than $125,000 of home equity from creditors, and after 40 months existing state homestead limits would apply. This provision prevents a debtor from shielding assets by purchasing a home in a state with an unlimited homestead exemption, while also recognizing that states should have the ability to set homestead exemptions at levels they deem appropriate.
The legislation was approved by a 74 to 25 vote. House leaders have indicated that they plan to approve the bill as early as next month, and President Bush is expected to sign the bankruptcy measure into law shortly thereafter.
To read the legislation, click here and enter S. 256 in the box at the upper left.
For further information, e-mail J.P. Delmore at NAHB, or call him at 800-368-5242 x8412.