Evictions and Bankruptcy: A Primer
This guide answers the following question: how does bankruptcy affect evictions? Some renters are not going to like the answer. Eviction Judgment Ordered by a State Court The Bankruptcy Code was reformed by Congress in 2005 ostensibly to cure many areas of "abuse" by debtors. The major reform was to make it more difficult for people to file for Chapter 7 by introducing a means test for those debtors who make more than the median income of their state. Another -- but less talked-about -- reform was aimed at "protecting" landlords from tenants who file for bankruptcy after winning eviction judgments. And this reform is quite onerous. Under Bankruptcy Code Section 362(b)(22), the bankruptcy automatic stay does not apply to any "eviction, unlawful detainer action, or similar proceeding against a debtor" where the lessor has obtained "a judgment for possession" against the debtor. Once an eviction has been ordered by a court, a bankruptcy will not prevent it. Subsection 362(l) does offer a small way out but it will be extremely difficult to meet by most renters. The eviction may be stayed, but only if the debtor certifies under penalty of perjury that: 1) relevant state law allows for the entire monetary default to be cured after a judgment for possession has been entered; and 2) the debtor has deposited with the bankruptcy court the next 30 days of rent. While this does not seem too bad, it gets worse. By the end of the 30-day period, the debtor must cure the entire default; otherwise, 362(b)(22) kicks in and the eviction proceeds. California does allow a tenant an avenue to cure a monetary judgment by applying with the court to reinstate the tenancy by paying all outstanding rent. So the first prong of 362(l) is met. The only question is whether the tenant-debtor will have enough money to cure the default in 30 days. Essentially, Bankruptcy Code 362 gives a debtor only 30 days to avoid an eviction and only if s/he is able to deposit 30 days of rent with the court immediately AND pay all outstanding rent in the next 30 days. Even if the debtor certifies that s/he will be able to cure the default, expect the landlord to fight by objecting to the certification. No Eviction Judgment Entered What about debtors who do not have an eviction judgment against them but are behind on rent and the landlord has filed an unlawful detainer action (or has indicated an intent to do so)? In such an instance, the bankruptcy's automatic stay will pause the eviction proceedings; the landlord will be unable to proceed to trial or file motion for default judgment in the eviction proceedings. If not eviction proceedings have been commenced, then the landlord will not be able to. However, the Bankruptcy Code does provide the landlord with options. Since the landlord is a creditor (the debtor owes back rent), s/he will receive notice immediately after the debtor files for bankruptcy. At that point, the landlord will be allowed to file an Motion to Lift the Automatic Stay along with an application to expedite the motion's proceedings. The court will mostly likely grant expedited proceedings since the landlord is being continuously damaged the longer his/her property is being occupied without rent. At the motion hearing, unless the debtor can persuasively show that s/he will pay the back rent immediately in a Chapter 7 or quickly during the term of a reasonable Chapter 13 Repayment Plan, the court will most likely grant the motion. This can all happen about two or three weeks after the debtor files the bankruptcy petition. If you are facing a situation where you have to "choose" between rent and other obligations, the best option is to ALWAYS pay your rent first; bankruptcy will not save you if you do not do so. Do not pay your credit cards, student loans, payday loans, etc. Contact a bankruptcy attorney to discuss your options to eliminate debt and help you pay your rent.