When a tenant files bankruptcy, an automatic stay is immediately imposed by Section 362 of the Bankruptcy Code. The automatic stay prevents creditors from taking any action to collect a debt from the debtor or any property that the debtor may have an interest in, even if said interest is merely an equitable or possessory interest. In order to avoid being sanctioned by the court for violating the automatic stay, landlords should seek the advice of competent bankruptcy counsel as soon as the bankruptcy case is discovered. Below are four general tips for any landlord dealing with a tenant in bankruptcy.
1. Cease all Communications. Once you are aware that a tenant has filed bankruptcy, do not communicate with the debtor before speaking with a competent bankruptcy attorney about your options with respect to the automatic stay. The court defines the automatic stay broadly, and even something as simple as a monthly account statement can be construed as an improper attempt to collect a debt in violation of the automatic stay.
2. “For Cause” Stay Relief. In certain situations, the court will terminate the automatic stay “for cause” to allow a landlord to proceed with eviction proceedings against the debtor. In qualifying cases, your bankruptcy counsel can file a motion for relief from the automatic stay with the court on "negative notice," which means that if the debtor fails to file a timely objection, the court may grant the motion without a hearing. But, if the debtor files a timely objection, the court must set a hearing within 30 days from the date of the filing of the original motion. If you would like to find out if it is appropriate to file a motion for stay relief in your tenant's bankruptcy case, please schedule a consultation with us by calling 407.374.1372 or by clicking here to schedule online.
3. Serial Filers. In certain cases, if the debtor has had multiple bankruptcy cases dismissed within the preceding year, the stay may have terminated within 30 days of filing or may not have come into effect at all. It is important that you speak with a bankruptcy attorney to find out if this applies in your case. There are multiple factors to consider and a mistake could result in sanctions against you.
4. Proof of Claim. In addition to stay relief, you should also consider filing a proof of claim with the bankruptcy court to advise the debtor of the exact amount of your claim and to preserve your right to be paid through the bankruptcy case. Also, in certain cases, the court may determine that stay relief is not appropriate. If you cannot obtain stay relief, at the very least, you will want to make sure that you have filed a timely claim to preserve your right to receive payments through the bankruptcy case, if possible. If you would like to file a proof of claim or have questions about your options when a tenant files bankruptcy, call us at 407.374.1372 to schedule a consultation, or click here to schedule online.