Filing for bankruptcy can help you take control of your debt and obtain a fresh start financially. If you rent a storage unit at the time of your filing, however, you could run into a few problems. Here are two things you should know about how a chapter 7 bankruptcy can impact your rental, so you can take the proper precautions to protect property you may have stored in one.
The Bankruptcy Doesn't Eliminate the Lien
When people fall behind on their rental payments, storage facilities will typically put a lien on the property stored inside. This lets them take possession of the items and sell them at auctions to recoup their losses if the renters default on their monthly payments.
While a chapter 7 bankruptcy will eliminate your responsibility to pay any past-due amount on your rental unit, it won't get rid of the lien. The storage facility can't conduct any collection activity for the debt during the bankruptcy procedure or after you have received a discharge. However, the facility can take your property and sell it or require you to pay the past-due amount before it will let you have access to your belongings.
It's also important to note the facility can file an adverse proceeding with the bankruptcy court and ask to have the automatic stay lifted so it can continue collection activity. Since liens are considered secured debt, it's possible the court will approve the company's request if the owner can show there's reason to believe you won't continue making payments on the storage unit.
You don't have to pay past-due rent, but you do have to pay rent that comes due after the date your petition was filed. If you fail to keep up with the required payments, the court may lift the stay for the storage facility, which could result in the company selling your belongings.
It's difficult to say whether a company would invest the time and expense necessary to pursue a motion to lift the automatic stay. It's best to consult with a bankruptcy attorney to help you determine the chances of this happening and develop an appropriate response if it does occur.
You May Be Asked to Move Out
If the storage facility didn't place a lien on your property before you filed for bankruptcy, and sometimes even if they did, the company may ask you to move out of your unit. It's highly likely the company won't get any money from your bankruptcy estate for the past-due amount that's owed, and it can't do anything to collect on it. Rather than risk another possible default in the future, the storage facility may ask you to leave so it can rent the unit out to someone else.
The amount of time you have to move out depends on the terms of your contract and the size of your unit. However, if you don't move out by the deadline, the company may empty the unit and throw out your belongings.
This generally will only happen if you are past due on your payments. If your account is current, the storage facility will likely let you stay as long as you keep paying as agreed. The bankruptcy court will allow this as well, since storage rentals are considered leases and, thus, fall under the same rules as housing rentals.
The best way to avoid either of these consequences is to get caught up on your payments or move your belongings before you file for bankruptcy. To learn more about what may happen to your storage unit if you file bankruptcy, contact an attorney at a law firm like O'Brien and Dekker Attorneys at Law.