Effects of Resident Bankruptcy on Evictions – By: Tabitha Elligan in collaboration with Heather Tabor
A resident bankruptcy can tremendously change the way a landlord proceeds with an eviction. In fact, prior to 2005, residents could file a Chapter 7 or Chapter 13 bankruptcy and the court would administer an “automatic stay” to stop all landlords from collecting any unpaid debt. However, in 2005, the laws changed to allow landlords more discretion with the court. See below for the two ways a court can handle a resident bankruptcy.
Before An Eviction Judgement
If a resident files bankruptcy before an eviction judgment, the general rules is that an “automatic stay” will keep the landlord from starting the standard eviction process. Instead, the landlord is required to file a motion with the bankruptcy court establishing certain criteria and asking the bankruptcy court to lift (or provide relief from) the automatic stay. Once that relief is provided in the form of an Order by the Bankruptcy court the landlord can then proceed with the eviction process seeking only possession of the Premises. Although the court has discretion on whether to lift the stay, they do typically lift the “automatic stay” based on the terms of the Lease unless the resident can provide reasonable assurances on curing the breach and meeting their ongoing obligations under the Lease.
After An Eviction Judgement
If a resident files bankruptcy after an eviction judgment, the landlord can immediately begin the set out process and ignore the “automatic stay” with one limited exception. This is because the court-ordered eviction was already in play before the resident filed for bankruptcy. However, the resident can still stop the eviction process (at least for 30 days) by doing all three of the following steps: 1. Filing a statement with the court stating that they will pay the unpaid rent and that under state law they are allowed to cure the breach. 2. Send a deposit to the bankruptcy court of the unpaid rent that will be due in the next 30 days. 3. Serve the landlord with a copy of the letter. The landlord is then given the option of filing a response to this action by the resident, and the court will use its discretion to determine if the eviction will or will not proceed.
All in all, resident bankruptcies are tough on both the landlord and resident. Laws and exceptions to the law vary in each Bankruptcy district based on that particular judge’s interpretation of the Bankruptcy Code or local rules. Be sure to cease all late notices or demands for monies following receipt of a bankruptcy petition or notice from a resident as any demand or attempt to collect can be viewed as a violation of the “automatic stay” which could expose landlords to contempt proceedings and fines. Consult with an attorney if you are unsure of what steps you take next.