Owner financing a home to another individual can be a great move for a property owner. You get a monthly payment each month similar to renting, but also retain ownership of the property, including the tax benefits until the home is paid in full. But what if the person you are owner financing files for bankruptcy? You are entitled to payment, however, as a creditor, you must follow bankruptcy procedures and fair debt collection rules to avoid creating legal troubles for yourself.
Automatic Stay for Creditors
When a debtor who owes you money files for bankruptcy, an automatic stay goes into effect that will prevent you from doing anything to collect on the debt while the bankruptcy process is ongoing. Therefore, it’s important that once you are informed about the bankruptcy that you don’t call, email, text, or otherwise communicate with the debtor in any way. If you willingly violate the automatic stay you could be setting yourself up for fines, or having to pay legal fees or damages for the debtor.
The Creditor Process in Bankruptcy
When someone who owes you money declares bankruptcy, there is a creditor process you must follow in order to seek repayment. Under the US Bankruptcy Code, you must file a proof of claim with the US Bankruptcy Court stating the amount of money owed, if it’s a priority debt, and if the claim is secured or not. Owner financing laws are different in each state, but in most cases, they will not be considered a secured claim since the person doesn’t yet own any collateral. The proof of claim will essentially legally validate the debt owed to you by the bankruptcy court.
Contact an Ohio Bankruptcy Attorney
If you are owner financing a property to an individual you have a few options as a creditor that you’ll want to discuss with a bankruptcy attorney who has experience representing creditors. You may be able to file a motion to lift the automatic stay and pursue collection activities for any money owed or if the debtor violated any of the terms of the original contract. Based on the nature of the contract you may be able to pursue eviction proceedings or to reaffirm the date and continue following the terms of the original contract.