Lease and Bankruptcy: Are You at Risk of Eviction?

One of the most common concerns for tenants facing financial difficulties is the risk of losing their home if they file for bankruptcy. In Quebec, the Bankruptcy and Insolvency Act protects your right to stay in your rental unit, even if you owe money to your landlord at the time of filing. This means a landlord cannot terminate your lease simply because you filed a consumer proposal or declared bankruptcy, even if you have unpaid rent.

Unfortunately, many myths about personal bankruptcy prevent people from seeking the help they need to regain control of their finances. In reality, a Licensed Insolvency Trustee is there to protect your rights throughout the process, whether you choose a consumer proposal or file for bankruptcy.

Bankruptcy and Eviction: What the Law Says

In Canada, the Bankruptcy and Insolvency Act (federal law) and the Civil Code of Quebec state that a landlord cannot terminate a lease solely because a physical tenant (as opposed to a corporate tenant) is insolvent. However, some landlords still try to include an insolvency clause in the lease agreement, stating that the lease will be terminated if the tenant files for bankruptcy. It’s important to know that this type of clause is generally invalid and unenforceable.

Conditions to Keep Your Lease

While the law provides protection for tenants in the event of bankruptcy, this protection only applies if you meet your basic obligations:

1. Paying Your Ongoing Rent

Any unpaid rent at the time  of bankruptcy is considered unsecured debt and can be included in the debt relief process. However, for all periods after the bankruptcy, you must continue to pay your rent as agreed in your lease. The protection only applies to past debts, not to subsequent  ones after filing.

In other words, if you fail to pay your rent after declaring bankruptcy, your landlord can apply to the Housing Court (or TAL) to request the termination of your lease and your eviction.

2. Abiding by the Lease Terms and Conditions

You are still required to abide by your building rules and the terms and conditions of your lease, even after filing for bankruptcy. Protection from eviction does not apply if there are complaints about excessive noise, harassment, or disruptive behavior. In such cases, the landlord still has the full right to request the termination of your lease.

You are also responsible for the normal upkeep of your rental unit. Any damage caused to the property after the date of bankruptcy will not be included in your insolvency, and you will be fully responsible for those costs.

The Role of the Trustee: Will Your Landlord Be Notified?

A bankruptcy trustee operates under strict regulations designed to protect both your rights and those of your creditors. If you have unpaid rent, your landlord officially becomes one of your creditors, and the trustee is legally required to notify them of your bankruptcy.

On the other hand, if you have no outstanding rent at the time of filing, your landlord is not considered a creditor and, therefore, will not be informed about your bankruptcy.

Is the Trustee a Threat to Your Housing?

Not at all. Contrary to popular belief, the trustee is there to help you and protect your rights. Their role is to manage your debts and help you regain financial stability, not to take away your basic necessities. As long as you continue to pay your rent, the trustee has no interest or authority to terminate your lease.

In fact, the trustee’s mandate includes ensuring that your landlord does not take advantage of your vulnerable situation to evict you illegally. If your landlord tries to intimidate you after receiving the bankruptcy notice, the trustee will step in to remind them of the rules under the Bankruptcy and Insolvency Act. Once your bankruptcy is filed, the landlord no longer has the right to contact you to demand payment of past debts.

What Happens if the Tenant Wants to End Their Lease?

Sometimes, it can be more beneficial to start fresh in a more affordable rental. Under certain conditions, bankruptcy can allow a tenant to terminate an expensive lease while avoiding the usual penalties. If your current rent is a major reason for your over-indebtedness, bankruptcy may provide an opportunity to restructure your expenses.

If you feel you can no longer afford your rent, you can inform your trustee of your intention to end the lease. In this case, the usual termination penalties become unsecured debt that can be included in the bankruptcy.

By leaving an expensive rental, you reduce pressure on your monthly budget and avoid accumulating new rent arrears after filing for bankruptcy. If you are planning to move, make sure to discuss it promptly with your trustee before stopping payments or leaving the property, so the process remains legally compliant.

A physical tenant’s bankruptcy is not in itself a reason for eviction. Contrary to some beliefs, no lease clause can override the protections provided by law, including those in sections 66.34(2) and 84.2(2) of the Bankruptcy and Insolvency Act. However, this protection ends if a default occurs after the bankruptcy or consumer proposal.

The legal mechanisms and the trustee’s role are specifically designed to ensure that tenants meet their obligations, such as paying rent and following lease terms, so that eviction protection and lease continuation are maintained.

With the right information and support, it is entirely possible to navigate this challenging financial period without losing your home.