How a Tenant Bankruptcy Affects a Landlord's Right to Evict
Whether a tenant has filed for bankruptcy before or after an eviction judgment affects the steps a landlord must take to regain possession of the rental unit.
What If the Tenant Filed for Bankruptcy after an Eviction Judgment?
Prior to 2005, a tenant bankruptcy could impede a landlord's ability to proceed with a court-ordered eviction proceeding. A tenant could easily stop an eviction by filing for a Chapter 7 or Chapter 13 bankruptcy. Once the tenant filed for bankruptcy, an "automatic stay" prevented all creditors, including landlords, from pursuing the repayment of debt.
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act changed the prior law. The landlord can now evict a tenant, regardless of an automatic stay, if the landlord had a court-ordered judgment for possession prior to the tenant filing for bankruptcy. The landlord, therefore, can ignore the automatic stay.
If the eviction is for the nonpayment of rent, an exception applies if state law allows a tenant to remain in the rental unit and "cure," or pay the rent, after an eviction judgment. Most states, however, do not allow this option. The tenant can stop the eviction process by taking these steps:
- File a certification, or a sworn statement, with the bankruptcy court stating that state law allows a tenant to stay in the rental unit and pay the delinquent rent after the issuance of an eviction judgment;
- Deposit with the bankruptcy clerk the amount of rent that will be due 30 days from the filing of the petition; and
- Serve the landlord with a copy of the certification.
The tenant has 30 days from filing the certification to pay the amount owed. If the tenant cures the default, the tenant must file a second certification with the bankruptcy court and serve the landlord. A landlord can object to either certification, and the bankruptcy court will hold a hearing within ten days of the objection. If the landlord prevails, the court
will lift the stay and the eviction may proceed.
What If the Tenant Has Already Filed for Bankruptcy?
If a tenant fails to pay rent or violates a term in the rental agreement, an automatic stay will prevent the landlord from giving the tenant a termination notice or from beginning the eviction process if the tenant has already filed for bankruptcy. The landlord can proceed with the eviction by asking the federal bankruptcy court to lift the stay. In most cases, the judge will lift the stay because a lease agreement has no effect on the value of the tenant's estate.
What If There is Illegal Drug Use and Property Endangerment?
If a tenant has already filed for bankruptcy, the landlord can begin eviction proceedings or continue with the eviction process without asking the bankruptcy court to lift the stay if the use illegal drugs occurred on the property or the property was endangered. The landlord must take either of the following steps:
- If the landlord filed the eviction action prior to the tenant filing for bankruptcy, the landlord must file a certification with the bankruptcy court stating that the basis of the eviction is for illegal use of drugs on the property or property endangerment.
- If the eviction action began after the tenant filed for bankruptcy, the landlord must provide the bankruptcy court with certification that illegal drug use occurred on the property or that the tenant endangered the property within the past 30 days.
The landlord must serve a copy of the certification on the tenant. The landlord can proceed with the eviction after 15 days have elapsed, unless the tenant files an objection with the court and serves the landlord. The court will hold a hearing within ten days if the tenant objects. If the tenant cannot establish that the situation has been remedied or that the landlord's statement was untrue, the court will allow the landlord to proceed with the eviction.Source: realestate.findlaw.com