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Open Collection of Student Writing (OCSW)

Protect Small Property Owners

Current bankruptcy laws are unfair and financially harmful to private, or small, property owners. The laws favor tenants over landlords when it comes to unpaid or late rents; regardless of tenant’s means or intent to pay on judgments issued against them. Small property owners across the nation are taking huge financial hits due to lost rental income, coupled with costs of repairing property damage. A few modifications to existing bankruptcy laws would provide small property owners with important protection from pending or potential tenant bankruptcies.

Rules regarding bankruptcy discharge can only be changed through the lengthy process of a bill becoming law (How). As chairman of the Senate Finance Committee, you, Senator Orin Hatch, are in a unique position to sponsor a bill that would show more fairness towards small property owners. Such a bill would allow for relief of debt through dischargement and offer additional protections for small property owners. Current bankruptcy laws are sensible enough for large property management companies, but unreasonable for small property owners.

Since the proposed bill needs to differentiate between large and small companies, it should then include a clear definition for a “small property owner”; such as “individuals or privately held corporations owning less than 10 rental properties”, or “individuals or privately held corporations whose total rental property value, assessed by property tax, is less than $10,000,000”. The bill should also stipulate that existing bankruptcy laws will remain in place for all property owners who fall outside the definition of “small property owners”.

Currently, all property owners lose according to the same rules (Grassley). This is harder on small property owners because not only do they lose financially from the loss of unpaid rents, they are required to continue paying all overhead costs associated with the property. Property taxes must be paid by the property owner whether rent is coming in or not. Landlords include all taxes and fees when evaluating the cost of renting out their property, so essentially, a percentage of the rent is property tax. Mortgage costs and condo/HOA fees are handled the same way, paid by the property owner, and woven into the total cost of rent.

It is worth noting that property tax, other tax, court fees, condo or HOA fees, as well as fines or penalties for law violation already make the list debts not dischargeable under any circumstances (O’Neill). Since rent payments certainly include applicable property tax, and/or condo/HOA fees, it stands to reason that the law contradicts itself in this matter. How is a judgment for unpaid rent so different from fines or penalties imposed by law violation? How is the gross breach of contract by the tenant not a violation of a property owners rights?

The impact of unpaid rents on small property owners is vastly different from the impact to large property management companies (Landlord). Those companies can at least distribute the overhead costs of property tax, and other fixed costs, over all tenants renting parcels of a given property. Overall, it is less painful for large companies to absorb costs of lost rental income and repairs to damaged property. The following is one example of how bankruptcy law currently imposes unnecessary hardships on small property owners:

The property owner of one high-end residential rental property in Utah needed to evict a tenant due to unpaid rent. The eviction process took over two months to unfold in the court system and could have potentially lasted much longer if the tenant had filed for bankruptcy prior to the court issuing the landlord a judgment for possession of the (rental) property. The landlord paid all upfront court costs and attorney fees associated with the eviction. After the tenant was forcibly removed, the landlord discovered significant property damages totaling over $25,000. Even though a court-issued judgment for unpaid rent was logged at the County Clerk’s office, no collection agency will attempt to collect on it because it is “assumed” the party will file bankruptcy (Maxfield).

Each day an eviction drags out, the amount of lost revenue increases. Small property owners are forced to endure the legal process of eviction, no matter how long it takes. Some tenants take advantage of the “automatic stay”, and file for bankruptcy after the court eviction process begins, but before the landlord is awarded a judgment of possession (Marie). This is wildly unfair to the property owner because it means the landlord must petition the court for relief from the automatic stay, just to pursue getting their property empty… from someone who will not or cannot pay. The landlord suffers financial injury, while the tenant takes advantage and manipulates the system. The non-paying tenant must be legally and forcibly removed before damage assessment and repair work can begin. All these delays hurt the property owner because they extend the time gone by without the opportunity to have replaced the non-paying tenant with a paying one. Recourse for the property owner is essentially non-existent, they must either let it go or spend more money to enforce judgments.

Property owners bear the responsibility to pay up-front for all legal fees necessary to evict an unpaying tenant who will not vacate. Even a judgment of possession granted by the court to the landlord means little. If the tenant refuses to leave, the landlord must call a process server who then sends out a constable; constables don’t work for free and they are not paid by the court (Utah Courts-1). The landlord must again pay, just to have the judgment enforced! The constable’s main task is to inform the tenant they have been evicted. He allows them a few minutes to gather what belongings they can, and leave, while the property owner changes the locks.

Other out-of-pocket costs to property owners during an eviction process is any ongoing care to the property, defined by lease agreement as the landlord’s responsibility. These often include municipal fees for sewer, water, and garbage and sometimes include extras like snow- removal or lawn-care maintenance. Once a non-paying tenant is evicted, the individual property owner must document any damages, then cover all repair costs out of pocket, in order to get the property back into rentable condition.

These conditions in total present a highly unfair balance between protection offered to a tenant’s vs protection offered to small property owners. The law should protect the lessor and lessee as equally as possible; therefore, I urge you to sponsor a bill modifying the existing list of non-dischargeable debts, to INCLUDE judgment for unpaid or past-due rents owed to small property owners. Although it doesn’t change anything for large property management groups, it will create a fairer relationship between tenants and small property owners.

Collecting on a judgment is like finding a unicorn, because it so rarely happens. For the injured party to obtain any payment, the person a judgment is written against must have means to pay; and, the injured party must have means to pursue collection. This leaves small property owners at a huge disadvantage because there is little recourse to collect even a small portion of what is legally owed them; besides letting it go, or spending more time and money pursuing “the possibility of collecting” (Shapiro).

Another consideration this bill needs to include is how judgments owed by non-paying tenants are processed. For example, when a judgment for unpaid rent is issued by the court, it should simultaneously begin the process of identifying the debtor’s personal property or assets, because the court has the power to do this, while landlords do not. The law needs to be modified so that small property owners have some chance to successfully collect even a portion of the judgment. Once the judgment for possession is issued, the next hurdle a landlord must leap is to identify the debtor’s property or other assets through a court hearing. He can attempt this himself or pay an attorney; additional costs are imposed upon the property owner either way. Hearings to identify property ownership can then result in a writ of execution and/or a writ of garnishment (Utah Courts-2).

A writ of execution is a court order, often issued after the judgment for possession. It begins the process of transferring assets from a debtor to a plaintiff, in form of money or other real property. Another means of collecting is through a writ of garnishment; this order requires third-parties to withhold property from the debtor, usually money, to pay off a creditor to whom they owe a debt, or judgment. Writs of garnishment are commonly used to collect a percentage of the debtor’s wages over time, to satisfy a judgment (Utah Courts-2).

We need your help to amend existing bankruptcy law. The financial strain put on small property owners is unfair. They largely go uncompensated. Currently, a landlord must fight in court to receive an exception in cases of debt-dischargement due to bankruptcy. The burden of proof is unfairly high because the landlord has to prove a tenant was intentionally deceptive and destructive to property (O’Neill).

Please sponsor this bill and amend the current law regarding dischargeable debts. Help small property owners by establishing that judgments for unpaid and past-due rents, are not dischargeable.

Works Cited

“How A Bill Becomes A Law.” United States Congress, lowenthal.house.gov/legislation/bill-to- law.htm.

Grassley, Senator Chuck. “Text – S.256 – 109th Congress (2005-2006): Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.” Congress.gov, 20 Apr. 2005, www.congress.gov/bill/109th-congress/senate-bill/256/text/enr.

“Landlord Recourse Residential Tenant Bankruptcy.” Bernstein-Burkley, bernsteinlaw.com/publications-list/when-a-residential-tenant-files-bankruptcy/.

Marie, Jenna. “A Tenant Is Filing Bankruptcy & Owes Back Rent.” Home Guides | SF Gate, 7 Oct. 2016, homeguides.sfgate.com/tenant-filing-bankruptcy-owes-back-rent-53174.html.

Maxfield, Lynda. “Personal Experience.” 17 Aug. 2018. Tenant eviction process; inability to collect on judgment.

O’Neill, Cara, and Albin Renauer. How to File for Chapter 7 Bankruptcy. Nolo, 2017. Shapiro, Mark. “Judgment Recovery Statistics.” LinkedIn, LinkedIn, 12 July 2014,

www.linkedin.com/pulse/20140713004230-1918722-judgment-recovery-statistics/. “Utah Courts-1.” Utah Courts – How to Collect a Judgmentwww.utcourts.gov/howto/judgment/.

“Utah Courts-2.” Utah Courts – Identifying the Judgment Debtor’s Property (Supplemental Proceedings), www.utcourts.gov/howto/judgment/Supplemental_Proceedings/.

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