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Bill Halts Tenant Bankruptcy Abuse
The U.S. House of Representatives on April 14 passed bankruptcy legislation that strikes a fair balance between the rights of tenants and property owners, and also provides sufficient safeguards for home owners to protect their property in the event of a bankruptcy filing.
The Senate passed the same measure last month — S. 256, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” — and President Bush signed it into law last week.
“The bill contains two beneficial provisions for apartment owners and home owners,” said NAHB President Dave Wilson. “First, it will 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. And second, it recognizes that states should have the ability to set homestead exemptions at levels they deem appropriate.”
Under the old law, a tenant was able to exploit the protection of the U.S. Bankruptcy Code’s “automatic stay” provision to forestall an eviction, and could remain in a rental property for months without paying rent until a bankruptcy judge lifted the stay.
“These tenants drove up housing costs for the vast majority of residents who paid their rents on time,” said Wilson. “At the same time, they also threatened the economic viability of rental properties, particularly subsidized housing properties with thin operating margins.”
The new law will remedy this abusive practice. It establishes 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. It also provides debtors with due process protection against unfair evictions.
S. 256 further stipulates that home owners who file for bankruptcy within 40 months of buying a home will be able to protect no more than $125,000 of home equity from creditors, and after 40 months existing state homestead limits apply.
“This provision represents a balanced approach. It gives each state sufficient leeway to set their own threshold and prevents a debtor from shielding assets by purchasing a home in a state with an unlimited homestead exemption,” said Wilson.
To read the legislation, click here and enter S. 256 in the box at the upper left.
For more information, e-mail Michael Strauss, or call him at 800-368-5242 x8252.
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