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My tenant has filed bankruptcy. What can I do?

On Behalf of | Nov 26, 2014 | Bankruptcy, Firm News

Well, if they are good tenants, and have paid on time and are continuing to pay on time, you may not need to do anything. You could certainly ask that they sign a formal assumption of the lease, which would make all of its terms enforceable. Because if you don’t do that, and you subsequently need to evict them, even after the automatic stay has expired (which is usually about 90 days after a chapter 7 has been filed) then any provisions in your lease regarding for example the requirement that they pay your attorney’s fees for an eviction, are not enforceable, because bankruptcy voids contracts.

If they are behind on their rent then you would need to bring a motion for relief from the bankruptcy stay. The bankruptcy court would then give you permission to start an eviction action in state court. Any back rent that they owe you as of the time the case is filed will most likely get discharged, although you can usually just apply any security deposit toward that. You should have the right to subsequently collect from them any rent that accrues after the bankruptcy has been filed until they fully move out, and should also be able to claim any damages to the unit that occurred subsequent to the bankruptcy filing. It would be a good idea to ensure that your motion for relief from stay and proposed order specifically grant you the ability to do this. Also, it would not be a bad idea to inspect the property immediately upon filing the case, and give the tenant the opportunity to point out any damages that exist as of that time. You need to be careful in your communications with the tenant while the stay is in place, preferably by communicating through their attorney. While some debtor’s attorneys may want to fight for every last week, day, and hour that their client can possibly squeeze out of a free living situation, most attorneys would prefer to negotiate a resolution within their clients means, and if their client cannot afford the place, they should be advised that it is time to move on, and what the consequences are of continuing to squat (i.e. having an eviction on their record and being responsible for post-petition debt).