Help My Tenant Filed Bankruptcy!

We have recently received multiple calls from clients who tried to evict a tenant on their own and were told by the court that they could not proceed because the tenant had filed for bankruptcy protection or were told directly by the tenant that a bankruptcy was imminent.

When a tenant files for bankruptcy protection federal law immediately grants them an “automatic stay.” This automatic stay prevents creditors, including landlords, from taking any action against the tenant. One item of confusion is that while as a landlord you may not be interested in monetary issues and just want your property back, the automatic stay also stops any eviction action from moving forward.

In order proceed against a tenant who filed bankruptcy a landlord must file a motion with the bankruptcy court asking the court to allow the eviction to move forward. This motion may take a bit of time to be decided by the court. During that time the tenant may continue to reside in the property without making payments. While this may be frustrating the landlord must not take any action against the tenant or she will potentially face significant sanctions for violating the automatic stay.

11 U.S.C. Section 362 (h) of the Bankruptcy Code, describes the penalties that can be assessed for violations of the Automatic Stay. It reads as follows:

(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

Do not despair not everything is lost. The landlord following the filing of a motion with the bankruptcy court and approval by the court may not only regain possession of the property through an eviction but also collect rents that are due. While it is not always easy you may petition the court and obtain payment for rent accrued after the filing of bankruptcy. Depending on whether the tenant filed a Chapter 7 or Chapter 13 there may be funds available to make payments for the amounts owed. The landlord may have to file a document called a proof of claim letting the court know that it is interested in pursuing the debt through the bankruptcy process.

While the process may take a bit longer with the right guidance and assistance you will regain possession of the property and may even collect part of the debt in some cases.

Should you receive notice that your tenant filed bankruptcy call us immediately as the potential sanctions for violating the stay could be costly. When dealing with tenants who filed bankruptcy you really do not have time to waste. We can help you navigate through the process to maximize your claims and minimize exposure.

Call us with any questions at 480-656-8333 or email us at