Once a tenant files a bankruptcy petition, federal bankruptcy laws intercede to prevent you from seeking an eviction or from attempting to collect rents due and owing prior to the filing. This is the “automatic stay” of bankruptcy. Everything “stays” until you have permission to move forward with either your eviction action or your collection of rents due prior to the filing. Do you send regular past due notices? Do not send them out for any amounts due and owing prior to the tenant’s filing of bankruptcy. Suppose the tenant files June 30, 2016; you
3. Judgment for Possession Prior to Bankruptcy
Suppose you had obtained a judgment for possession and afterwards the tenant files for bankruptcy? This situation is an exception to the automatic stay found in Section 362(b)(22) of the Bankruptcy Code, but before you get overly excited, there is an exception to this exception. If the tenant files certifications that the tenant can “cure” the monetary default under State law and pays any pre-petition debt to the landlord within 30 days after filing, as well as the rents due during that 30-day period, then there might not be an exception to the automatic stay.
This is a tricky area involving both State and Federal law interplaying together. Depending on your State’s laws, there may not be an opportunity may send the tenant a past due notice in July 2016, but you cannot include in that notice amounts due and owing for June 2016 or prior. That said, if your past due notice states that you may seek possession or start an eviction action, then do not send that notice. Remember, both eviction for possession and monies due prior to filing are part of the automatic stay. Land- lords who violate the automatic stay risk sanctions from the federal bankruptcy court.
2. Motions for Relief
The most common step landlords take to “lift” the auto- matic stay is to file a motion for relief from the automatic stay in federal bankruptcy court. Different bankruptcy courts in various areas may have different local rules, but as a general rule, the motion for relief should state the amount due and owing prior to the tenant’s filing bank- ruptcy, or the “pre-petition” debt, as well as the amounts due and owing after the filing, the “post-petition” debt. Usually the petition will explain that the landlord is without adequate protection financially if the landlord were to remain subject to the automatic stay (because after all
you did not decide to become a landlord to provide free housing forever). The motion should also state that the tenant does not have the means to pay. Attaching the lease and a ledger to the motion as exhibits is advisable.
to “cure” after the judgment is entered. If, how- ever, your State provides that a tenant may pay the amounts due and owing after the entry of judgment, then there is a “cure” option for the tenant.
Even where the tenant fails to file the certifica- tions or meet other obligations to obtain the above- described “exception to the exception,” many State courts and judges are unfamiliar with bankruptcy, let alone any of the exceptions to the automatic stay in bankruptcy. Often they are reluctant to proceed without an Order granting a motion for relief from the automatic stay. This is an instance in which your attorney may need to educate a local court (tactfully, of course) by providing copies of the bankruptcy exception to the automatic stay in Section 362(b)(22) of the Bankruptcy Code.
Bankruptcy does not beat a landlord or provide a tenant with an endless opportunity to live rent free provided that a landlord uses the available bankruptcy laws to their advantage. It is impor- tant to record the filing date of the bankruptcy
to make sure you are not attempting to collect “pre-petition” debt. Remember, also, that while the bankruptcy is pending, the landlord may not file an eviction action against a tenant without obtaining a bankruptcy court order.