Bankruptcy and evictions
Being an attorney who handles both bankruptcies and evictions comes with certain advantages – it can be handy to understand the strengths and drawbacks of both areas of law when they collide.
In most cases, a debtor who files for bankruptcy protection has no problem keeping his or her lease. If a debtor has a good relationship with a landlord, then there is typically no problem in keeping that rental contract going as it always has.
However, there is a real problem when a tenant is far behind on rent and a landlord has already started an eviction action or is considering filing one. A bankruptcy filing will stop most actions cold due to the automatic stay provisions of the U.S. Bankruptcy Code. Simply put, one of the chief advantages to filing a bankruptcy is that the automatic stay means that collections efforts against debtors are stopped immediately.
There are some exceptions to that rule when it comes to evictions. For one thing, the automatic stay does not protect a tenant from an eviction process if a landlord has a writ of possession in hand before the bankruptcy is filed.
The writ of possession, of course, is the document that allows the landlord to call on the local sheriff’s office to remove the tenant. That writ – as the name implies – gives the landlord the right to take back the property.
But, what happens if a bankruptcy is filed before the writ is obtained? What happens if the eviction process isn’t started at all until after the tenant files for bankruptcy? Won’t the automatic stay prevent the landlord from taking back his property?
The answer to that question is “yes,” but there is an exception. Specifically, 11 U.S. Code §362(b)(23) gives a landlord the right to pursue an eviction action if the tenant has endangered the property.
Here’s how that works. Last year, my office represented a landlord who wanted to evict a tenant that responded to his demands for rent by filing for bankruptcy. That particular tenant had some dogs that he never let out of the house, so the carpet was ruined and my client suspected the subflooring was also in danger of being destroyed as wood tends to warp and rot when animals constantly pee on it.
We filed a motion for relief from automatic stay pointing out the damage that the tenant’s animals were doing to the property and the bankruptcy court allowed my client to pursue his eviction action in circuit court against the tenant. We were able to get our writ of possession and remove the tenant shortly after the bankruptcy court granted us permission to do so.
The bad news, of course, was that the bankruptcy case pretty well prevented my client from seeking any monetary damages for past due rent, the destruction to the property, etc. But, honestly, how often are landlords able to collect cash from tenants through an eviction process, anyway?
The main point here is that tenants who think they can file for bankruptcy and remain in their homes might be in for a surprise. A landlord who can honestly show the tenant is endangering the property can get permission from the bankruptcy court to pursue an eviction action.
This column — part of the Practical Lawyer series — was authored by Ethan C. Nobles and originally appeared in the May 9, 2016, edition of the Daily Record in Little Rock.