A review of common questions asked about what happens from the landlord point of view when a tenant files bankruptcy.
Bankruptcy is a federal court procedure to help a person(s) get rid of debt in Chapter 7 and repay their creditors in Chapter 13. There are quite a few questions that landlords have about what happens when a tenant files.
All creditors will receive a Notice of Bankruptcy Filing in the mail to the address provided by the tenants. There is also a federal website where bankruptcy information may be looked up at www.pacer.gov.
Once a tenant has filed bankruptcy, any action by the Landlord to collect a debt or evict a tenant must stop immediately. This is called an automatic stay goes into effect as soon as a tenant files for bankruptcy. Any attempt by the landlord such as writing a demand letter or even having a conversation about a past due balance can be a violation of the automatic stay. If a landlord violates an automatic stay, the Judge may impose fines or award a teannt a judgment for attorney’s fees, damages and costs. It could even include damages for emotional distress and lost wages due to time spent solving a violation.
In order to begin or continue an eviction lawsuit against a tenant who has filed bankruptcy, a landlord must ask the Federal Bankruptcy Judge to remove the automatic stay. This request is a Motion for Relief from the Automatic Stay.
If a landlord has obtained an eviction judgment, but the tenant files Bankruptcy before the Sheriff removes them, the landlord should be able to proceed. The “judgment exception” allows a landlord to continue eviction proceedings post-petition, so long as the judgment for possession was obtained beflore the tenant filed bankruptcy. However, despite this exception, some sheriffs will not permit the landlord to remove the tenant’s personal posessions from the rental property. It is the best practice to still file a Motion for Relief to avoid potential liability.
The United States Code provides a strict timeline that Courts must follow when ruling on Motions for Relief. The stay automatically lifts thirty days after the Motion for Relief is filed, unless the Court, after notice and a preliminary hearing, orders that the stay be continued pending a trial to take place within thirty days after that preliminary hearing, unless the parties agree otherwise, or the Court finds “compelling circumstances” to justify keeping the automatic stay in place longer. An Order for Relief becomes final after fourteen days after it has been granted.
If your rental property is owned in the name of a business entity, you are required by law to be represented by a lawyer. If you own your rental property in your individual name, you may be able to represent yourself without a lawyer. Title 11 of the United States Code contains highly detailed laws and rules. In addition, because a person’s home is at stake, many Judges will set the bar very high when it comes to ruling in the Landlord’s favor.
Rent, late fees, utility charges, and court costs accrued during the period of time before a tenant files bankruptcy is a pre-petition debt and considered an “unsecured” claim. This is the last type of claim to be paid and, if paid at all, is almost certain to be severely discounted.
If a tenant stays in the rental property after the bankruptcy is filed, the claim for rent, late fees, utility charges, and court costs for this period of time are post-petition debts. Post-petition claims are paid before other claims in bankruptcy.
You are obligated to accept payments of the post-petition rent, late fees and costs.
An Order for Relief becomes final after fourteen days. Thereafter, a landlord can enforce all of its state law rights and remedies including: sending a demand, commencing an eviction action, continuing an unfinished eviction action, or attempting to collect post-petition rent, late fees, utility charges, and court costs.
A “proof of claim” is a bankruptcy form that a creditor (a person who is owed money in a bankruptcy case) files in a bankruptcy case that describes the amount of money the debtor owes the creditor and why. A creditor must attach copies of documents supporting his claim. This may include promissory notes, lease agreement, payment ledger, cashed checks, etc.
In Chapter 7 cases, creditors are only permitted to file proofs of claim if the Assistant United States Trustee discovers non-exempt assets that may be liquidated. In this case, the Trustee will send out a notice to the landlord instructing him to file proofs of claim and the deadline. This is extremely rare in Chapter 7 cases.
landlords may always file proofs of claim in Chapter 13 cases. The deadline to file proofs of claim in Chapter 13 cases is located on the Notice of Chapter 13 Filing which is sent out to all creditors when a debtor opens a case.
An attorney may file a proof of claim electronically via the CM/ECF system. Creditors who are not represented by an attorney must file the proof of claim in paper at the Federal District Courthouse.
In Chapter 7 cases, the Assistant United States Trustee will use the proofs of claim to make distributions to
creditors based on the amount of money that is recovered from the debtor’s estate.
In Chapter 13 cases, the Assistant United States Trustee may use the information in the proofs of claim to
object to the tenant’s repayment plan. The Creditor/Landlord will also be afforded the opportunity to
object to the repayment plan.
PLEASE NOTE that filing a proof of claim does not guarantee that you will be paid all, or even part, of the money that is owed to you by the tenant.
Learn more about dealing with tenants and creditors who file bankruptcy by viewing the reports on the forms page at www.MOKSLaw.com or by reaching out to Julie Anderson and her team with Anderson and Associates.