Apr 18 2005
House passage of bankruptcy legislation today would strike a fair balance between the rights of tenants and property owners, and also provide sufficient safeguards for home owners to protect their property in the event of a bankruptcy filing, according to the National Association of Home Builders (NAHB).
Noting that the Senate approved the same measure last month, NAHB President David Wilson, a custom home builder from Ketchum, Idaho, welcomed congressional approval of S. 256, the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005."
"The bill contains two beneficial provisions for apartment owners and home owners" said Wilson. "First, it would stop an abusive practice under current law in which delinquent tenants facing eviction can file for bankruptcy, triggering an automatic stay that requires the property owner to stop all eviction proceedings even if the tenant is damaging property or involved in illegal activity. And second, it recognizes that states should have the ability to set homestead exemptions at levels they deem appropriate."
Under current law, a tenant is able to exploit the protection of the U.S. Bankruptcy Code's "automatic stay" provision to forestall an eviction, and could remain in a rental property for months without paying rent until a bankruptcy judge lifts the stay.
"These tenants drive up housing costs for the vast majority of residents who pay their rents on time" said Wilson. "At the same time, they are also threatening the economic viability of rental properties, particularly subsidized housing properties that have thin operating margins."
The legislation approved today by the House and to be signed into law shortly by President Bush will remedy this abusive practice. It establishes a clear procedure for the speedy resolution in federal bankruptcy court of cases in which a tenant has defaulted on the lease agreement for failure to pay and then files for bankruptcy. It also provides debtors with due process protection against unfair evictions.
S. 256 further stipulates that home owners who filed for bankruptcy within 40 months of buying a home would be able to protect no more than $125,000 of home equity from creditors, and after 40 months existing state homestead limits would apply.
"This provision represents a balanced approach. It gives each state sufficient leeway to set their own threshold and prevents a debtor from shielding assets by purchasing a home in a state with an unlimited homestead exemption" said Wilson.