Tenant files for bankruptcy

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Laws may have changed since this article was published. Before acting, be sure to receive legal advice from our office. For contact information, please visit our website: www. Skip to content Robert Thorn, Esq. Updated January Bankruptcy filings stop evictions. Motion for Relief from Automatic Stay Court permission is required to continue an eviction after a bankruptcy has been filed.

Types of Bankruptcy Individual tenants file bankruptcy petitions under either Chapter 7 or Chapter Business entities file bankruptcy petitions under Chapter 7 or Chapter A Chapter 7 debtor has 60 days from filing to assume or reject a residential lease. Bankruptcy law is complex. When a tenant files for bankruptcy, seek legal advice. Rent payments may arrive late, financial covenants may be missed, and the tenant may become generally unresponsive in the pre-bankruptcy period.

Upon learning a tenant files for bankruptcy , the landlord must abide the automatic stay. The landlord may not, therefore, send a default letter or prosecute an eviction action. While limited exceptions to this general rule exist, a landlord should consult with counsel before taking any post-bankruptcy legal action against its commercial tenant. In some cases, the court may impose sanctions for willful violations of the automatic stay. Pay special attention to the deadlines for filing proofs of claim and for filing proofs of rejection damages, each of which require affirmative landlord action to recover unpaid sums under the lease.

Closely review any budgets filed by the tenant to confirm that the budget includes post-petition rent payments in the correct amounts.

Consider retaining counsel to appear in the case, which will ensure that you receive prompt notice of events in the case and relevant deadlines. Gather all documentation pertinent to the bankrupt tenant in order to readily assert claims in the bankruptcy case, including to support a motion for relief from the automatic stay if it becomes necessary.

Ensure you have copies of the following:. Whether or not a commercial landlord desires to continue its business relationship with the bankrupt tenant, the bankruptcy code allows the debtor to exercise its business judgment to determine whether to assume retain or reject terminate an unexpired nonresidential lease.

If the tenant assumes the lease, it must make the landlord whole for any unpaid rent and any pecuniary losses stemming from the defaults under the lease. This is a voluntary termination of the lease and will require the tenant to leave sooner rather than later.

The tenant will no longer be bound by the terms of the lease. At the end of this judgment, you will be told how you can expect to be paid back for any back rent as well as what to expect from any rental time that the tenant has with you.

The court ordered solution should be followed by all debtors and creditors, but it is possible to challenge the decision if you feel that it is not fair. And in some cases, you might not be! While this can be a big blow to landlords, sometimes you simply have to take the hit and move forward.

If the court orders the tenant to pay you back via a repayment plan, rest easy knowing that you will eventually get your money. Rather than sit around and think about the lost money forever, move on and make a fresh start with more reliable tenants in the future. Once your tenant has filed for bankruptcy, you need to be ready to set up your plan of attack. While you can be sympathetic to the unexpected problems that led your tenant into bankruptcy, you also need to protect the financial well-being of your business and be sure that their financial plan will include paying you back.

The automatic stay is one of the classic parts of the bankruptcy process that you might have to deal with. After a tenant files for bankruptcy, an automatic stay is placed that prevents creditors from collecting any debts or trying to collect any debts from a debtor until the bankruptcy case is ruled on. This means that you as a landlord will no longer be able to try and collect any past-due rent.

You also may not be able to file for eviction, though ongoing eviction cases that have already been ruled on can be continued. You can also continue to file for eviction if a tenant has done something illegal or otherwise endangered your property.

As soon as you find out that a tenant has filed for Chapter 13 or Chapter 7 bankruptcy, remember to stop trying to collect rent and move on to claim any debt in the proceedings. While the automatic stay will pause any collection on past due rent, the tenant is legally required to continue paying rent for as long as their lease is active.

They must continue to do so in a timely manner. The automatic stay does not change the fact that they owe you rent each month. If the tenant does not continue with payments in a timely manner, you can ask the court to begin eviction proceedings as you would normally do regardless of the ongoing bankruptcy case.

The court will decide how to handle things from there! A claim is a statement that details the amount of money the debtor owes a creditor. In your case, your claim should outline how much money the tenant owes you and why. This document must be filed with the bankruptcy court if you want the debt owed to you to be part of the payment plan or liquidation fundraising. If the tenant rejects the lease, you can claim some or all of the following:. To figure out when and how to get back as much of your money as possible, it is usually recommended to find a bankruptcy professional that can help you manage the paybacks.

Does it seem likely that a tenant of yours that is past-due on rent is going to ultimately need to file for bankruptcy? Have they told you that they will be filing for bankruptcy in the future? If so, you may want to try setting up a pre-bankruptcy resolution with the tenant before bankruptcy becomes an issue.