Eviction Diversion Programs and Chapter 13 Bankruptcy

First published at:  NCBarBlog With the publication of Evicted: Poverty and Profit in the American City, author Matthew Desmond has brought increasing attention both nationwide and in North Carolina to the growing eviction crisis. See Evicted (last visited Dec. 7, 2018). With increasing housing prices and gentrification, stagnant incomes, and slashed budgets for public housing, this problem is especially acute in North Carolina. Among large cities in the United States — those with populations greater than 100,000 — there were eight North Carolina cities in the worst 100 cities by eviction rate in 2016. Eviction Rankings, Eviction Lab (last visited Dec. 7, 2018). In Greensboro, which had the 7th highest eviction rate among large cities in the nation, 8.4 percent of renters were evicted in 2016, with nearly 1,400 Summary Ejectment filings every month. Stephen J. Sills, Greensboro’s Eviction Crisis, UNC Greensboro Ctr for Housing & Cmty. Stud.,(Aug. 15, 2018). Winston-Salem and Fayetteville were among the worst twenty large cities; Charlotte, High Point and Durham in the worst fifty; and Wilmington and Raleigh in the worst 100.

Eviction Diversion Programs

The crisis has reached such proportions that many cities, with the assistance of non-profit organizations and academic centers, have begun to embrace Eviction Diversion Programs. See, e.g., Eviction Diversion Program, UNC Greensboro Ctr for Housing & Cmty. Stud., (last visited Dec. 7, 2018); Eviction Diversion Program Gains Support from Durham City Council amid Eviction Crisis, Duke L.,(June 28, 2018). These programs focus not only on educating and engaging tenants about their rights and options, but also in working “to find the best fit for the business needs of the rental industry while better accommodating the needs of tenants” as evictions cost landlords thousands of dollars in lost rent, refurbishment costs, and legal fees. Eviction Diversion Program, UNC Greensboro Ctr for Housing & Cmty. Stud (last visited Dec. 7, 2018); see also Stephen J. Sills et al. Greensboro’s Eviction Crisis 7 (2018). Additionally, these programs are working to broaden their reach and efficacy by seeking to provide “emergency financial assistance to avoid evictions due to inability to pay utilities or rent owed in a crisis situation, landlord-tenant mediation to defuse situations potentially leading to eviction, and landlord and tenant education services to help both parties understand obligations and ensure that people remain successfully housed.” Sills et al., supra, at 24. These programs also often aim to have consolidated court days for eviction matters, so tenants can be presented with all potential options for assistance at one time. While many of these solutions may be sufficient for a tenant whose financial troubles are limited to rent delinquencies, those with broader debt problems might benefit from filing bankruptcy also.

A Role for Bankruptcy in Providing Eviction Relief

In many ways, the current eviction crisis mirrors the mortgage crisis that began in 2007 and 2008. While neither residential leases nor most home mortgages are subject to modification in bankruptcy, a Chapter 13 filing does, nonetheless, provide many options and advantages in either case. Most obviously, the elimination or reduction of other debts, either in Chapter 7 or Chapter 13, can often make paying the monthly rent more affordable. Also, as an immediate matter, the automatic stay halts any eviction so long as the tenant still has possession of the property, i.e. until the Sheriff padlocks the door. 11 USC § 362(a)(3). The length of this protection and the tenant’s obligations are set by Section 362(l). In addition to filing a certification regarding the status of the residential rental agreement at the time of filing, the tenant must deposit with the bankruptcy clerk of court “any rent that would become due during the 30-day period” post-petition. 11 USC §362(l)(B). Normally, this means one months’ rent, but a debtor filing on January 31 would have to deposit two months’ rent—February and March. The automatic stay prevents (or at least delays) the eviction, as well as the consequent financial, emotional, and health costs suffered by the tenant. See generally Matthew Desmond & Rachel Tolbert Kimbro, Eviction’s Fallout: Housing, Hardship, and Health, Soc. Forces, 2015,. As Chapter 13 plans often require little, if any, costs up front, this can be the most cost-effective way for a tenant to remain in his or her home. In the longer term, if there was a judgment for possession entered prior to filing the bankruptcy, the tenant would have thirty days to cure the entire monetary default or the stay would terminate. 11 USC §362(l)–(2). The exception to this is if the tenant would have, under non-bankruptcy law, a right to cure the default that lead to the judgment of possession. 11 USC §362(l)(A). If there was no judgment for possession entered prior to filing the bankruptcy, the tenant need only make the ongoing monthly payment within thirty days, and they would likely have a six- or twelve-month period to cure any default. This can be complicated if the tenant is on a month-to-month lease. However, since a tenant’s Section 8 housing voucher is a recognized real property interest, that voucher can serve as a basis for a longer cure period. Further, defenses, such as retaliation or discrimination, could also extend such the time for curing the delinquency. As the various cities throughout North Carolina continue to grapple with evictions, the North Carolina Bar Association Bankruptcy Section has a unique opportunity to assist. A hope would be that the Bankruptcy Council would make participation in these programs a priority.