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If you are like most landlords you are very careful about the tenants you choose to put in your property.  But, as we can all testify, even good people sometimes have financial problems.  How will your tenant’s consumer bankruptcy affect you?

If your tenant owes back rent, you have greater flexibility in your collection efforts.  Before 2005 a tenant could declare bankruptcy and stop all collection activities, including eviction.  The bankruptcy code has been amended to allow a landlord to pursue an eviction based on a tenant’s drug use or damage to your property.  And if you have already obtained a judgment for possession, you are allowed to proceed with the eviction unless the tenant meets a very narrow exception.

But what if the shoe is on the other foot?  What if you, as a landlord, are the one considering bankruptcy?

A bankruptcy filing can actually increase your cash flow.  Assume that you bought a rental property for $150,000, and the property is now only worth $100,000.  You may be entitled to a $50,000 principle reduction on the mortgage.  Such a reduction would obviously have a beneficial effect on your bottom line, as your mortgage payment would be substantially lower.

For more information on how bankruptcy can affect a real property lease, call Henley and Henley, P.C. for your free consultation.