As Covid-19 Eviction Ban Nears End, Spike in Bankruptcy Looms
The number of renters who are facing eviction is expected to rise, once the pandemic relief measure is lifted this June 2021. And a record high amount of unpaid rent is making bankruptcy a more attractive alternative for the millions of Americans who are struggling to pay their rent as the eviction ban comes to an end.
Generally, renters cannot employ bankruptcy to avoid eviction in order to evade eviction, unless they can work out on a plan that would allow them to pay back accrued rent. However for tenants, who are prepared to give up their leases, the process can slow an eviction and let them get out of paying accrued rent debt. And this feature is expected to get the attention of more tenants as the federal government’s eviction ban is set to end by the end of June.
The U.S. Treasury Department reported that about 7 million Americans are said to be behind their rent as of April this year. Nearly 5 million more tenants lacked the confidence that they can pay future payments.
Jay Fleischman, consumer bankruptcy lawyer of Shaev & Fleischman PC said, “Up until the pandemic, past due rent has not really been one of the reasons for people going into bankruptcy.” He added that “with so many people past due on their rent, I can expect a sea change.”
People do not usually file bankruptcy in order to resolve a single debt like an arrear, to delay eviction proceedings. The process does not automatically overturn the right of the landlord to get rid of delinquent renters. In general, this is used as the last resort for distressed homeowners who are facing foreclosure or people beleaguered by tons of different debts.
John Rao who is a lawyer at the National Consumer Law Center said that the eviction ban which was created last year at both the federal and state level have helped made a unique situation for many people who are financially distressed, owing more than they can repay and who can able to move.
Judge Kathy A. Surrat-States said that it highly probably that filing will surely spike once those moratoria are lifted. The judge who is with the U.S. Bankruptcy Court for Eastern District of Missouri said in a virtual conference last month that it is highly anticipated that filings will increase. She added that the bankruptcy will be able to provide renters some breathing space to move out on their own terms and possibly discharge the debt that has accumulated.
Difficult Process
Tenants who want to keep a residential rent through bankruptcy usually would file Chapter 13 in order to come up with a multi-year plan that repays past debts over time. However, avoiding eviction using bankruptcy can be hard.
If a landlord has already secured an eviction order, a renter who wishes to keep the lease may have about more or less 30 days to get completely caught up on payments, or worse case scenario, maybe not, depending on the state where he is located.
If the bankruptcy comes before the eviction process, a renter who wishes to keep the lease should have a plan on how to repay his debt, and should be able to make timely payments going forward.
Rao said that it would be harder to go into those types of plans if what you owe is relatively large. It would depend on how much you owe, stressing that that the larger the amount, the harder it is.
Even with the several shortcomings plaguing the eviction ban, bankruptcy could still be a good option for the millions of tenants with huge debts that have accumulated during the global health crisis.
Chapter 7 in particular may look very attractive to financially struggling renters who are willing to let go of their rents quickly instead of making repayment plans, since it lets a straightforward discharge of debts without a proposal for repayment. It can be a viable option to them.
Fleischman said, “You have to have this confluence of events that may well lead to the bankruptcy court at some point.”
Housing Uncertainty
The Center for Disease Control’s national eviction ban was first established last September 2020. The main objective of this program was to prevent the spread of the Corona Virus which was affecting millions of Americans. It also prevents many American families from being pushed from their homes amid the Covid-19 pandemic. However, the CDC’s national eviction moratorium is set to expire at the end of June 2021.
Just last May, a federal court has ruled that the eviction moratorium was over the authority of the CDC. The court’s ruling however was blocked from making any significant effect.
With the number of cases of Covid19 gradually going down, and businesses have started to open up, it looks like that the end of the moratorium is becoming more evident regardless of how the courts will rule against it.
About 14% of all American renters across the country are currently not able to pay their rent on time since the onset of the pandemic. They are behind on their monthly payments, but the number have steadily decline, from a high 19% recorded last January of this year. According to a partnership between a nonprofit research organization PolicyLink and the University of Southern California’s Equity Research Institute, National Equity Atlas, the numbers of American renters who are behind on their rent have started to go down. Of the total number of renters, 64% are people with color. The research organization further added that their data show that people of color have been disproportionately impacted by the global health crisis and they make up more than half of the Americans who are not able to pay rent on time.
However, the decline in the number of renters who failed to pay rent is still higher as compared to the rent delinquency rates back in 2017. The U.S. Census Bureau data showed that the current rates are double almost four years ago. The National Equity Atlas calculates that 54% of renters who are delinquent in their payment are unemployed, 68% of such tenants have lost employment or jobs or their source of income due to the covid19 pandemic, and this has increased the levels of housing insecurity in the country. The National Equity Atlas also reported that a lot of U.S. households who are behind on rent owe about $3,200 on the average, and half of this are behind by three months or more.
Edward Boltz of the Law Offices of John T. Orcutt said that people are far behind their rent because of the eviction ban that has been going on for so long. Boltz is a consumer bankruptcy lawyer.
Government Lifeline
More than $64 billion for rental assistance has already been appropriated by the federal government. This financial aid is to avoid any eviction crisis that could eventually result should the moratorium finally ends.
Eric Dunn, director of litigation at the National Housing Law Project reported that “There is enough money to cover the rent shortfall according to every estimate that I have seen.”
However those appropriated funds may not be able to avert or prevent the spike in bankruptcy filings for those renters who have accrued debts in other areas just to stay on top of the rental payments, Dunn further said.
“I am confident landlords are going to be made whole” with the federal rental assistance, Dunn added. “I am less confident this will not leave people insolvent.”