How Your Landlord's Bankruptcy or Property Sale Affects Your Deposit

Here's what happens to your deposit if your landlord goes bankrupt or sells your rental property,

If your building has been sold or the landlord has gone belly-up and declared bankruptcy, your security deposit should still be available to you (minus legitimate deductions for damage or unpaid rent) at the end of your tenancy. That’s the theory, at any rate. You may still have to take steps to retrieve your deposit.

How a Landlord Bankruptcy
 Affects Your Security Deposit

If your landlord files for bankruptcy, your security deposit is beyond the reach of his creditors. That’s because, technically speaking, it’s not your landlord’s money—it’s yours, which must be returned to you unless you fail to pay the rent or damage the property. Of course, if the landlord has used up every bit of cash within reach, there simply may not be any funds immediately available to pay you.

Don’t give up, however, if your landlord pleads poverty and shrugs. Remember, declaring bankruptcy doesn’t mean that the landlord gets to walk away from debts and keep inessential frills. The court will appoint a bankruptcy trustee who will assemble the creditors and pay them with what’s left of the landlord’s assets. Sometimes nonliquid assets (cars, real property, or jewelry) are sold to make funds available. Since you are not even a creditor, you should be at or near the top of the list. Contact the bankruptcy court (look online or in the government pages of your phone book under “United States Courts”) and write to the trustee, explaining your situation and asking to be paid.

How the Sale of Your Building Affects Your Security Deposit

In most states, the law requires a landlord who sells the building to do one of two things: Return the deposit to the tenant or transfer it to the new owner. If the old owner simply walks off with the deposit, the new owner cannot require you to pay again. He’ll have to come up with the money when it’s time to return the deposit to you. If he refuses, you’ll have to sue him, preferably in small claims court. In some states, you can also sue the former owner.

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