What to Do If Your Tenant Files for Bankruptcy in Phoenix
One of the worst things that can happen to a landlord trying to run a profitable income property business is to have a non-paying tenant. When this happens, your Phoenix property manager must start the eviction process. And this can take months to resolve.
Meanwhile, you’re not collecting rent and aren’t able to place a new a new tenant.
Sounds terrible right?
Well, it is. But what can be even more damaging to your rental property business is a tenant that declares bankruptcy. After all, if this happens, chances are slim they’re going to pay their rent. And your options for resolving the issue are even worse than starting an eviction.
Want to know what to do before your Phoenix, AZ tenant declares bankruptcy? Check out what bankruptcy is and what options you have to protect yourself and your investment.
What is Bankruptcy?
Bankruptcy is the legal status of someone that cannot repay their debts to creditors. When someone files for bankruptcy, the courts determine what options are available.
The two main types of bankruptcy a tenant can file for include:
Chapter 7 Bankruptcy
When lots of debt (e.g., credit cards, medical or utility bills, or personal loans) is dismissed. This is the most common form of bankruptcy in the United States. Adding to that, in 2016, 95.5% of the nearly 500,000 Chapter 7 bankruptcies filed were discharged. In other words, a half million people had all their debt wiped away and moved on with a clean slate.
Chapter 13 Bankruptcy
When a person has to reorganize their debt and make payments to creditors. Repayment plans usually last between 3-5 years. This type usually happens because of job loss, illness, or unexpected expenses.
What Happens If Your Phoenix, AZ Tenant Files for Bankruptcy?
When your tenant files for bankruptcy the court grants an automatic stay halting all collection efforts. This leaves you with a non-paying tenant and very little you can do about it.
That said, there are many things that determine the level of control you have over the situation.
Let’s look at the most common.
Situation #1: The Tenant Files for Bankruptcy and Then Fails to Pay Rent
If your tenant doesn’t pay rent after declaring bankruptcy, the automatic stay prevents you from terminating the lease. It also prevents your Phoenix property managers from initiating the eviction process.
You can ask the court to lift the stay so you can proceed with an eviction, but it’s not guaranteed. That said, most judges lift the stay for landlords.
Situation #2: There Was Illegal Drug Use or Property Endangerment
If there was illegal drug use on your property or property endangerment, you can override the automatic stay. This means you can continue with eviction proceedings.
Just make sure you or your property management company understand the following:
- If an eviction began before the bankruptcy filing, you must file a certification with the court. It will state there was illegal drug use or property endangerment.
- If an eviction began after the bankruptcy filing, you must file a certification with the court. It will state that illegal drug use or property endangerment happened within the last 30 days
The certification must be served to the tenant. After 15 days, you can start the eviction process unless your tenant is disputing the claims. If there’s a dispute, the court will hold a hearing and decide whether to allow you to continue the eviction or not.
Situation #3: The Tenant Files for Bankruptcy after an Eviction Judgment
Before 2005, the law made it so a tenant could file for bankruptcy after the threat of an eviction. They could then stop their landlord from collecting rent. This was because of the automatic stay and left no resolution for the landlord.
After 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. It gives landlords more control over evicting tenants for non-payment of rent. It even applies to tenants going through bankruptcy proceedings. In fact, it gives landlords the power to ignore the automatic stay.
The only way a tenant can halt the eviction is by following these steps:
- File a statement with the court that says state law allows a tenant to stay in a rental and pay the late rent after being issued an eviction notice
- Deposit with the bankruptcy clerk the amount of rent that’s due 30 days from the filing of the objection
- Serve you (the landlord) with a copy of the sworn statement
You can object to this process and make the claim to the court that your tenant is putting you at financial risk. The court will have the ultimate say in whether the eviction will move forward or not.
Situation #4: Your Tenant Files for Bankruptcy and Rejects the Lease
Your tenant can reject their lease agreement when filing for bankruptcy. If this happens, they have to vacate your property immediately and turn the property over to you.
This leaves you mid-tenancy without a paying tenant. You can seek relief from the courts for unpaid rent. However, you’ll have to go through the bankruptcy court. And the debt will be considered unsecured debt. In other words, the debt is not attached to a physical piece of property.
This makes collecting past due rent more difficult. Most states cap the amount you can collect in unpaid rent due to tenant bankruptcy.
Another option is to let your tenant find a new, highly-qualified tenant to take over the lease. Many lease agreements prohibit this practice. Yet, bankruptcy code allows tenants to assign their lease to another because of bankruptcy.
What to Do If Your Tenant Files for Bankruptcy
Dealing with a tenant bankruptcy is stressful. That’s why you or your Phoenix property manager should stay ahead of all bankruptcies.
Of course, it’s tough to know when a tenant will file for bankruptcy, especially if they’ve been paying their rent. That’s why you should have strict rent payment procedures in place from the start. This includes a set due date, late payment consequences, and immediate eviction filings.
If you find out your tenant is filing for bankruptcy, try negotiating a pre-bankruptcy resolution with them.
Options during negotiation include:
- Modifying the lease agreement to keep the tenant there and paying
- Working out a lease termination that works for both you and your tenants
If you want to negotiate with your tenant, talk to a Phoenix property manager. You’ll want to avoid things like preference rules. Preference rules are complex regulations. They prevent one creditor from making a deal that helps hurts another creditor.
Lastly, if your tenant files for bankruptcy and wants to leave, the best thing you can do is start advertising your property. The quicker you place a new tenant in your property, the less money you stand to lose in the long run.
Looking for Qualified Phoenix Property Managers?
Does the thought of dealing with a tenant bankruptcy make you want to give up on being a landlord?
Don’t let it. If you enlist the help of an experienced property management company, such as Brewer and Stratton, you won’t have to worry about what to do if your tenant files for bankruptcy.
We have strict tenant screening procedures in place to avoid leasing your property to tenants with financial problems. We also cover the costs of evicting tenants in case something unexpected happens. And if a tenant does file for bankruptcy, you can trust that we have the legal knowledge to help you every step of the way.
So, if you own a rental property and want the reassurance Phoenix property managers provide, contact us today. We’re a full-service property management company dedicated to helping you succeed. And if that means help you recover from a tenant bankruptcy, you can count on us.
How to Create a Welcome Package Your Tenants Will Remember
The way you welcome new tenants into your rental property can set the tone for the rest of the lease term. After all, you want your tenants to feel like they matter as they move into what they’ll now be calling home.
Up until now, you’ve looked deep into your tenant’s life. You’ve asked for references, checked on their employment status, and have even verified they’ve never committed any crimes. Not to mention, you’ve likely collected a lot of money from your tenants already.
Adding to this, your tenants have had to deal with the stress of packing their belongings and moving to a new home.
That hardly seems like fun for you or your tenants.
To show your tenants you’re dedicated to providing superior customer service, give them a tenant welcome package on move-in day.
They’re inexpensive, easy to put together and leave a great first impression.
Plus, they give you and your Phoenix residential property management company a chance to show your tenants that you care about them.
If a tenant welcome package is something that interests you, keep reading to find out the best way to put one together for your tenants.
What to Include in Your Phoenix Tenant Welcome Package
Before you throw together a tenant welcome package for your new residents, take the time to put some thought into what you’ll include. Remember, the key is to make moving into a new home easier and more enjoyable on your tenants.
1. A Welcome Letter and Information Packet
The first thing any tenant welcome package should have is a welcome letter written by you or your Phoenix residential property manager.
It should also include a detailed packet outlining important information your tenants should know upon moving in:
- Important phone numbers, including that of the Phoenix residential property management office
- A copy of the property’s rules and regulations, especially if your property is in a community with an HOA
- How to handle minor and emergency maintenance and repair requests
- How and where to pay the rent each month
- A list of local supermarkets, hardware stores, auto mechanics, etc.
- Basic appliance maintenance instructions
- Tenant referral programs you have in place
- Home security tips so your tenants, their belongings, and your property remain safe
- Parking and laundering information if applicable
Including a personalized letter and information packet in your tenant welcome package adds that special touch your tenants will remember come lease renewal time.
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2. Staple Items
When it comes to moving into a new place, tenants probably find themselves stressed, tired, and disorganized.
That’s why adding some staple items to the welcome package you deliver to them is so appreciated. Items such as toilet paper, tissues, hand soap, and even a shower curtain liner are good ideas.
Or, if you prefer, you can include cleaning items. For instance, a broom, sponges, all-purpose cleaner, and paper towels are all a great start.
Any of these items can be found at your local dollar store. They show your tenants you understand that moving can be stressful at times. It also shows them that while you take pride in your investment property, they should too.
3. Coupons and Fliers
Your tenants will likely receive a mailer full of move-in coupons shortly after they’ve settled into your rental property.
But wouldn’t it be nice if you gave them coupons and flyers they actually want?
After moving into a new place, finding supermarkets, restaurants, and even the furniture shops are all going to be on your tenant’s to-do list. Make it easier for them by adding some specialty coupons to the welcome package. And don’t forget to include some flyers to the best restaurants around.
Many local hotspots are more than willing to hand out exclusive coupons for people new to town to use. All it takes a little bit of your time to ask in person. You never know, you might land your tenants some really great deals.
Want to spend a little extra cash on your tenants when they move in?
In addition to coupons, add a few gift cards to the mix to really help your tenants as they move into their new home. For example, add gift cards to the grocery store, restaurants, coffee shop, and even the movies so your tenants can have a break from unpacking.
4. Gifts from Afar
Buying an income property is a big deal. This is especially true if you’re looking to become financially free and enjoy your best life ever. Yet, owning a rental property in another city or state can be tough to manage on your own.
If you’ve entrusted your rental property to a Phoenix residential property management company because you live far away, you can still give your tenants a welcome package.
In fact, your property manager can put together a welcome package for you and deliver it to your tenants for you.
However, if you want to show your tenants that you’re serious about them moving into your property, try sending some welcome gifts from afar.
Here are some ideas for those times you can’t hand over a welcome package but still want to show your tenants you care:
- Fruit Baskets. There’s a reason companies like Edible Arrangements are so successful. Everyone loves receiving a basket full of delicious in-season fruits (some even covered in chocolate!). If you live far away from your tenants, order a fruit basket and include a thoughtful card with a personalized message.
- Flowers. Another much-appreciated gift is a bouquet of flowers. Your tenants are sure to love having a beautiful arrangement of flowers to add to their new home.
- E-Cards. This can include a simple greeting card or even e-gift cards. Doing this is a simple way to give your tenants the welcome package gifts you want. Plus, it helps you build a better relationship with them.
Making your tenants feel special, whether you live nearby or far away, is easy when you give them a tenant welcome package.
If you’re in need of Phoenix residential property management and want some help with putting together the perfect welcome package for your tenants, contact us today.
At Brewer & Stratton Property Management, we understand the importance of forging strong landlord-tenant relationships. We also know the role property managers play in those relationships. We can help you draft a thoughtful welcome letter and information packet with everything your tenants need. Plus, we know the local area so if coupons, gift cards, and flyers are something you’re interested in adding, we know just the right places to place them.
We strive to offer a level of customer service that no other residential property management in Phoenix can. So, trust us to welcome your tenants in a way they’ll always remember. This way, when it comes to leasing renewal time, your turnover rate stays low and your ROI stays high.