The Process Server (TPS) Evictions and the Bankruptcy Automatic Stay: What Landlords and Tenants Need to Know
Navigating the intersection of eviction law and bankruptcy can be complex, but understanding how the bankruptcy automatic stay operates is essential for both landlords and tenants. When a tenant files for bankruptcy, an automatic stay is triggered, halting most actions against the debtor, including eviction proceedings. Here's a closer look at how the bankruptcy automatic stay works and what it means for landlords and tenants.
Understanding the Bankruptcy Automatic Stay
Under Bankruptcy Code Section 362, the filing of a bankruptcy petition automatically halts most actions against the debtor. This "automatic stay" is designed to give the debtor a breathing spell from creditors, including landlords, while they sort out their financial affairs under the supervision of the bankruptcy court.
More specifically, Section 362(a) provides that the automatic stay applies to a wide range of actions, including:
Commencement or Continuation of Legal Proceedings
This includes the initiation or continuation of eviction actions against the debtor that could have been commenced before the bankruptcy case was filed. If a landlord has already begun eviction proceedings, those proceedings are generally halted once the tenant files for bankruptcy.
Enforcement of Judgments
The stay also stops the enforcement of any judgments obtained before the commencement of the bankruptcy case. This means that if a landlord has already secured an eviction judgment, they cannot enforce it while the automatic stay is in place.
Actions to Obtain Possession of the Property
The stay prevents landlords from taking any action to obtain possession of the rental property or to exercise control over the property, effectively freezing any eviction efforts.
Creation or Enforcement of Liens
The automatic stay halts any attempts to create, perfect, or enforce a lien against the property of the estate, including any lien related to the rental property.
Collection of Debts
The stay stops all efforts to collect debts that arose before the bankruptcy filing, including unpaid rent.
Exceptions to the Automatic Stay
While the automatic stay is broad, there are some exceptions. For instance, if the landlord obtained an eviction judgment before the tenant filed for bankruptcy and the tenant is using the property illegally (e.g., drug use or property damage), the landlord may seek relief from the stay to proceed with eviction.
In some cases, the landlord may file a motion with the bankruptcy court asking for the stay to be lifted to allow the eviction to proceed. The court will consider the circumstances of the case and decide whether to grant or deny the motion.
Tenant Obligations During Bankruptcy
Even though the automatic stay halts eviction proceedings, tenants must continue to fulfill their obligations under the lease. This includes paying rent on time and maintaining the property. If a tenant fails to meet these obligations, the landlord can petition the court to lift the stay, allowing them to pursue eviction.
Tenants have two primary options when they file for bankruptcy:
Lease Assumption
The tenant agrees to continue honoring the lease terms, including making all payments due. This is more common in Chapter 13 bankruptcy cases, where the debtor reorganizes their debts.
Lease Rejection
The tenant decides to terminate the lease and vacate the premises. Rent is due up to the date of termination or vacation, whichever is later.
The default deadline for a tenant to decide whether to assume or reject the lease is generally 60 days after the bankruptcy filing, although this can be extended for good cause shown by the court.
Time Deadlines in Bankruptcy Cases
The time deadlines for a bankruptcy debtor tenant in possession of leased premises vary depending on the type of bankruptcy:
Chapter 7 (Liquidation)
Generally, the tenant has 60 days to decide whether to assume or reject the lease.
Chapter 13 (Reorganization)
The deadline is until a repayment plan is confirmed, subject to court extensions.
Practical Considerations for Landlords
Landlords should be aware that the automatic stay applies broadly to all actions related to the debtor's property, including efforts to collect past-due rent or enforce eviction judgments. Before taking any action, landlords should consult with legal counsel to ensure compliance with bankruptcy law and to determine whether seeking relief from the stay is appropriate.
At The Process Server (TPS), we understand the complexities of eviction and bankruptcy law. Whether you're a landlord or tenant, having a clear understanding of your rights and responsibilities during bankruptcy can help you navigate this challenging situation with confidence.
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13416 North 32nd Street #110F, Phoenix, Arizona 85032, United States
Phone: +1 (602) 675-2333
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