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If you're facing eviction, this last resort could buy you time: Attorney

Renters facing eviction should consider filing for bankruptcy in order to buy more time to make a financial decision, says consumer finance and tax attorney, George Tadross.

“[Declaring bankruptcy] gets anywhere from, I would say, three to six months, which might not sound like a lot of time, but to be honest with you, it's a godsend,” Tadross said. This extra time can give those facing eviction time to sort out their finances and decide in which direction they wish to proceed, he added.

Bankruptcy is a legal filing which is declared when a person is unable to meet his or her outstanding debts. There is a legal process for qualifying for bankruptcy, in which filers must meet certain criteria related to income, value of personal assets, and levels of debt. Declaring bankruptcy can help people relieve themselves from debts, though it can also lower credit ratings and make future loans more difficult to acquire.

“Consult a local attorney who knows the laws,” said Tadross, who practices in Philadelphia. “Every jurisdiction is a little bit different.”

Moratoriums ending, evictions rising

In 2021, a federal eviction moratorium was extended to relieve both landlords and tenants after COVID-19 destabilized the economy and increased unemployment. The Supreme Court eventually struck down this policy, but several state and local eviction moratoriums remain in place. Issues arose after much of the federal money ended up not reaching the targeted individuals in a timely fashion. Through the end of July 2021, only $4.7 billion of the $47 billion appropriated Congress had reached landlords and tenants, the Treasury Department reported in August.

Now, over a year after the onset of the pandemic, many Americans are still behind on their housing obligations. An estimated 10 million Americans, or 14% of U.S. renters, are behind on rent payments, according to data from The Center on Budget and Policy Priorities. Eviction rates could be on the rise in the near future, especially for lower-income renters and people of color.

The moratoriums and stimulus payments were instrumental in lowering the rate of individuals filing for bankruptcy, Tadross said. “There's never been fewer bankruptcy filings in recent memory than the last year and a half, again, because those moratoriums and benefits and things like that were extended to people.”

Though there are risks associated with bankruptcy, Tadross noted, some tenants may be too quick to dismiss it as a viable option because of its stigma.

“I understand … No one really wants to be in that position,” he said. “But you have to look at what the consequences are of not doing anything, even setting aside the harshness of an addiction [or] being kicked out on the street. Someone does nothing and they have tens of thousands of dollars in debt and [don't] want to file bankruptcy. Well … it's gonna just keep increasing.”

Bankruptcy can act as a buffer between looming evictions and renters who need more time to figure out their next financial move. That three-to-six months can be crucial, Tadross stressed, and is sometimes the difference between a debt-riddled life and a path to regain financial stability.

“Every month, REITs [real estate investment trusts] report further delinquencies on to the credit bureaus,” he said. “And it's just going to get harder and harder to dig out of that hole.”

For those who are looking to declare bankruptcy, it’s crucial that they do so before eviction judgments are passed down, Tadross emphasized.

“If they're going to file for bankruptcy and want to get that additional time, they have to do that before the eviction judgment,” he said. “Once they have that eviction judgment, the bankruptcy automatic stay won't help them, because now it's the landlord seeking possession. And that's not like a real credit or … a collection activity any longer that's protected by automatic state. So they really, really cannot wait past that.”

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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