When A Landlord Files Bankruptcy
When a landlord files a bankruptcy case, both the landlord and the tenant have a great deal of anxiety. How will the bankruptcy affect the tenancy? Does the tenant continue to pay rent? Is the landlord still obligated for repairs? Fortunately the Bankruptcy Code contains specific provisions for dealing with the rights of both the landlord and the tenant during a bankruptcy.
The Bankruptcy Code seeks to balance the contractual rights of the tenant against the interest of the bankrupt landlord in discharging overwhelming financial obligations. Section 365 of the Bankruptcy Code allows a bankrupt landlord to either assume or reject a lease. In the majority of the cases the landlord accepts the lease and the tenancy continues with the mutual promises and obligations of the lease contract remaining fully enforceable.
If the landlord rejects the lease, then the tenant may treat the lease as terminated and “walk away” without further obligation. Alternatively, the tenant may choose to stay, however the landlord no longer has any obligation under the lease contract. The tenant treats the lease as breached and may offset any damages resulting from the breach from rent payments. If the damages incurred exceed the amount of rents due under the contract, the tenant may be able to submit a proof of claim and participate in the landlord’s bankruptcy as a creditor.
To make matters more complicated, section 363 of the Bankruptcy Code permits a landlord to sell the rental property “free and clear” of any contractual interest, such as a tenant’s lease. However, the Bankruptcy Code also enables the tenant to ask the bankruptcy court to “prohibit or condition” any sale to protect the tenant’s interest.
Sorting out the legal rights of a landlord and tenant can become highly complex when the landlord files bankruptcy. If you are a landlord seeking to file bankruptcy, or the tenant of a bankrupt landlord, discuss your case with an experienced bankruptcy attorney. The federal bankruptcy laws are flexible on this subject and a resolution that is mutually beneficial can be reached. Make sure your legal interests are protected by retaining qualified counsel.
Can Bankruptcy Stop A Rental Eviction?
A person’s financial situation is often desperate by the time a bankruptcy is filed. In some circumstances the rent is past due and the debtor is facing eviction. Fortunately, the bankruptcy laws can help many debtors stay in their homes, at least temporarily.
Generally, when you file a bankruptcy petition all collection actions are automatically stayed. The purpose of this stay is to give you some breathing room and time to sort out your financial difficulties. If you are behind on rent payments, the bankruptcy automatic stay stops the commencement or continuation of an eviction action. The automatic stay prohibits your landlord from any attempt to collect rents that accrued prior to the bankruptcy filing date. Your landlord may not write or call you in an effort to collect these rents, and may not start or continue a lawsuit to evict you.
The bankruptcy automatic stay will not relieve you from your obligation to pay rent after the bankruptcy filing date. If you fall behind on your rent payments after the bankruptcy is filed, your landlord may evict you regardless of the bankruptcy, but cannot seek payment of past rents. If you are not behind on rent at the time the bankruptcy case is filed, your landlord is not a creditor and will not receive notice of your bankruptcy filing. However, you must account for any rent deposit on your bankruptcy schedules.
In some circumstances a landlord may complain to the bankruptcy court that the tenant is endangering the property or using controlled substances illegally on the property. The landlord must file a certification to the bankruptcy court and the tenant has 15 days to respond. The court must hold a hearing within 10 days. If the landlord is successful in this complaint, the court will lift the automatic stay and allow the eviction process to continue.
If your landlord has obtained a judgment for possession and order of eviction before you file bankruptcy, the legal process is more complex. You must deposit one month of rent to the bankruptcy court immediately upon filing the bankruptcy petition along with a certification stating that your landlord’s judgment permits you to stay in the premises upon satisfaction of the entire judgment amount. This filing stays the eviction process for thirty days. If you wish to remain longer, the amount stated in the judgment for possession must be paid within the thirty day period.
Bankruptcy can stop an eviction and give you time to move or make arrangements to stay. If you are facing eviction from your rental home and contemplating bankruptcy, discuss your situation with an experienced bankruptcy attorney.