Evicting Bankrupt Tenants
Prior to the changes made to the Bankruptcy Code, individuals who were facing the possibility of eviction would rush to file for bankruptcy protection as a way of "buying time" to either make a deal with the landlord or move somewhere else. However, when the laws were revised, landlords were given more of an incentive to vigilantly track those tenants who are in arrears on their rent.
If a Judgment is in Effect, an Eviction Can Continue
Under the old law, tenants were given immediate protection from evictions by way of an "automatic stay," which is a court order that temporarily stops creditors from pursuing collection efforts. However, the revisions to the Code do not afford tenants that protection if a landlord has already filed a lawsuit for eviction and obtained a judgment of possession against those tenants. Still, the law does bar landlords from evicting tenants if they certify to the court that state law would allow them to pay the landlord the overdue rent that originally caused the landlord to initiate the eviction, deposit the amount of rent due with the bankruptcy clerk and certify that they have cured the default within 30 days of the bankruptcy filing.
The Automatic Stay
Whenever an individual files for bankruptcy protection, the law initiates an automatic stay, which remains in effect until the court either lifts it or allows the landlord to take certain actions. It bears mentioning, however, that landlords who either threaten to violate the stay or actually do violate the stay will face a number of penalties, to include payment of the tenant's court costs and legal fees, reimbursement for the tenant's other losses suffered due to the action and payment of punitive damages that are intended to penalize landlords for the violation.
Under the law, landlords who have not already won judgments for eviction can ask the bankruptcy court judge to lift a stay so that they can move forward with those proceedings. In cases in which the tenant who has filed bankrupt has not actually fallen behind on the rent or violated the terms of the lease in any way, landlords should be aware that the bankruptcy trustee will make a determination as to whether or not to continue the lease or rental agreement or terminate it. In most instances, the trustee will allow the tenant to keep the lease as is; however, if the rent paid by the tenant is excessive in an area where there are more modest rents available, the trustee has the discretion to suggest to the court that a debtor move to a different area, particularly in cases where he or she is not making any payments to creditors and the lease is long-term.
Landlords should also be aware that, if a trustee allows a bankrupt individual to keep a lease, the landlord has the right to ask the court to demand that the individual provide proof of his or her ability to pay rent in full and in a timely fashion in the future, even in cases where the individual has never been late paying rent in the past. If the individual cannot provide sufficient proof, or if he or she is late paying the rent in the future, the landlord can request the court to end the lease and lift the stay so that an eviction can proceed.
If you have questions or concerns regarding the termination of a lease or evicting a tenant who has filed bankrupt, contact an attorney at Griffin Alexander, P.C. today to discuss the facts of your case.