Bankruptcy doesn't affect eligibility for the Housing Choice voucher program (previously known as Section 8), and receiving housing vouchers doesn't affect bankruptcy. However, a previous bankruptcy can hamper a voucher recipient's choice of housing, and landlords of Section 8 tenants may find the eviction process slowed by a tenant's bankruptcy.
Housing Choice Vouchers (Section 8)
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The Housing Choice Voucher program subsidizes the rents of low-income people who live in properties owned by private landlords. Local housing authorities distribute rent vouchers to tenants, who can then use their vouchers to pay part of their rent. Landlords who participate in the Section 8 program can use any legal, non-discriminatory standard for screening tenant applications.
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Bankruptcy
Bankruptcy protects people from their creditors. When a person files for bankruptcy, the court discharges her debts after she agrees to liquidate assets to pay off her creditors, or enters into an approved repayment plan lasting three to five years.
Tenant Screening
Many property owners use credit reports in the tenant screening process. Bankruptcies show up on credit reports for seven to 10 years depending on the type of bankruptcy. It is legal for a landlord to reject a potential tenant's housing application because of his credit history, even if the tenant has a Housing Choice voucher.
Eviction and the Automatic Stay
When a person files for bankruptcy, the court issues an automatic stay against his creditors. This means creditors must cease all collection activity, including filing an eviction case. However, the law also allows a landlord to ask the court to lift the stay against the tenant, and courts usually do this. This can mean that a tenant could stay in his home a few days or weeks longer than he would if he was not filing for bankruptcy. The automatic stay does not prevent a landlord from enforcing an eviction granted by a judge before the Section 8 tenant filed for bankruptcy.
Prevention/Solution
People with Section 8 vouchers should expect landlords to have misgivings about renting to them if they have a bankruptcy on their credit record. In some cases, property owners might be willing to work with a tenant who has a history of bankruptcy or other credit problems if the tenant can give good references. Landlords should prepare for the possibility that a tenant who has not paid her rent could file for bankruptcy. Thus gaining more time in her apartment before a legal eviction forces her to move.