Filing bankruptcy can stop a residential rental eviction. But only if you file your bankruptcy case is before a judgment of possession.
Our last blog post was about stopping the collection of unpaid spousal and child support by filing bankruptcy. Chapter 7 doesn’t stop collection of this special kind of debt. Chapter 13 does, but only temporarily unless you meticulously follow a number of requirements.
Today we get into the special rules about another very special kind of debt: unpaid residential rent. Somewhat similar to spousal and child support, if you meet certain requirements your bankruptcy filing can stop certain landlord collection actions—in this case, evicting you. But an eviction does not stop if you wait too long. Here’s how it works.
Keeping Possession of Your Rental
Bankruptcy’s “automatic stay” law makes it illegal for your creditors to take many actions against you and your property. There is a list of the kinds of actions that creditors can’t take as of the moment you file bankruptcy. Included on that list is for a creditor “to obtain possession of [your] property” or “to exercise control over [your] property.” (See Section 362(a)(3) of the United States Bankruptcy Code.)
Your “property” in this statute doesn’t just include the physical, tangible things that you own. “Property” has a much broader meaning. It includes “all legal and equitable interests… in property as of the commencement of the [bankruptcy] case.” (Section 541(a)(1) of the Bankruptcy Code.) “Property” includes intangible things like your rights in something of value.
This includes any “leasehold” interests you hold. That’s your right to occupy or keep possession of your rental property. The automatic stay stops your landlord from “obtain[ing] possession of” or “exercise[ing] control over” your rental residence. Your landlord’s attempt to evict you is stopped by your bankruptcy filing.
However, there is a crucial condition to this protection. Your landlord can’t take possession of the rental only if you do actually still HAVE a right to the possession. If you no longer have a right to possess the rental at the moment you file your bankruptcy, it’s too late. The automatic stay no longer helps you.
If you’ve legally lost the right to possess the rental, then you no longer have that “property” to protect.
How and When Do You Lose Your Right to Possession?
Each state has different rules about how and when a residential lease is terminated. So you need to discuss this with an experienced local bankruptcy lawyer.
The Bankruptcy Code does provide a little more help. It says that an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(b)(22).)
Has your landlord gotten “a judgment for possession” of your rental? If not, an immediate bankruptcy filing will stop the eviction. For example, if your landlord has threatened to, or even has begun, legal action to remove you from rental premises, but has NOT yet gotten a judgment for possession of the premises, your bankruptcy filing will stop that proceeding. It will stop the landlord from removing you, at least for now. But if the landlord HAS gotten a judgment for possession, filing bankruptcy will not stop the eviction.
A Final Possibility
However, even if your landlord has just gotten a judgment for possession there is one final possible escape. There is a procedure in bankruptcy which might allow you to avoid eviction. When filing bankruptcy you and your lawyer can file a special certification. It must assert the following.
- You are “permitted [under state law] to cure the entire monetary default that gave rise to the judgment of possession.”
- This cure of the default is allowed under your state’s law even after the landlord received a “judgment for possession.”
- You deposit with the bankruptcy court clerk the full amount of any rent due, including up through 30 days after filing the case, and certify that you’ve done so.
If the landlord does not object, the automatic stay goes into effect and you can stay in the rental.
If your landlord does object, the bankruptcy court holds a hearing within 10 days about this. The court decides whether the landlord’s objection is valid or not. If valid, the landlord can immediately proceed with the eviction. If the objection is not valid you can stay in the rental. (Section 362(l)(1-4).)
Bankruptcy stops a residential eviction if the landlord hasn’t already gotten a judgment of possession on the rental. Under very limited circumstances even after such a judgment you might be able to beat the eviction. But by then the odds are stacked quite high against you. It makes infinitely more sense to file bankruptcy before an eviction starts, and certainly before the court decision goes against you.
Be aware that eviction proceedings are usually very fast. If you expect one, or it’s already been filed, you need to see a bankruptcy lawyer immediately.