Stopping Eviction and Curing Rent Default in Bankruptcy

May 12, 2020   |   Posted by: Admin

Prior to the amendments of the Bankruptcy Code in 2005, the filing of a bankruptcy proceeding automatically stayed a residential eviction proceeding unless and until the landlord obtained relief from the automatic stay.

However, in 2005, subdivision (b) of Section 362 of the Bankruptcy Code was added and now provides the following “exception” to the automatic stay with respect to a judgment for possession “obtained before the date of the filing of the bankruptcy petition”:

“(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay –…

(22) subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor;”

If the landlord has not obtained a judgment for possession against the debtor prior to the bankruptcy filing, the automatic stay goes into effect as usual and stays the eviction.

However, if the landlord has already obtained a judgment for possession against the debtor before the bankruptcy filing, the automatic stay does not stay the eviction unless the debtor completes item # 11 on page 3 of the Voluntary Petition entitled “Do you rent your residence?” and Official Form 101A entitled “Initial Judgment About an Eviction Judgment Against You”, makes the required certifications on that form, and deposits with the bankruptcy court any rent that would become due within 30 days after the bankruptcy filing date. Thereafter, the debtor must also cure the entire rent default that gave rise to the judgment for possession within 30 days.

Filing bankruptcy prior to entry of a judgment for possession against the debtor provides two very significant benefits to the debtor: (1) the automatic stay stops the eviction without the need to deposit rent with the bankruptcy court; and (2) an unexpired residential lease that has been terminated under state law due to non-payment of rent can be “cured” and “assumed” in a chapter 13 bankruptcy proceeding; the past due rent arrearage can be paid over time in a chapter 13 plan and the lease can essentially be reinstated.

Be sure to check bankruptcy case law applicable in your local jurisdiction regarding the curing of a terminated residential lease. Also, be aware that the Bankruptcy Code treats defaults involving non-residential leases differently than residential leases.