Once a landlord’s worst enemy, the United States Bankruptcy Code is now more of a friend especially after the overhaul of the Bankruptcy laws in 2005. Bankruptcy Abuse Prevention and Consumer Protection Act allow a landlord to evict a tenant, regardless of an automatic stay, if the landlord had a court-ordered judgment for possession prior to the tenant filing for bankruptcy. In other words, the landlord can ignore the automatic stay and continue just as if there is no bankruptcy filing. However, if the debtor has filed for bankruptcy before the eviction proceedings started, then automatic stay will prevent the landlord from giving the tenant a termination notice or from beginning the eviction process. The landlord can proceed with the eviction by asking the federal bankruptcy court to lift the stay. In most cases, the judge will lift the stay because a lease agreement has no effect on the value of the tenant’s estate.
Some states have laws allowing the tenant to remain in the rental unit and cure, or pay the rent, after an eviction judgment. Therefore if the eviction is for the nonpayment of rent, this exception can apply. In such cases, the tenant can stop the eviction process by filing a certification, or a sworn statement, with the bankruptcy court stating that state law allows a tenant to stay in the rental unit and pay the delinquent rent after the issuance of an eviction judgment. A copy of the certification should be served on the landlord. The tenant has to deposit the amount of rent that will be due 30 days from the filing of the petition with the bankruptcy clerk. If the tenant cures the default, the tenant must file a second certification with the bankruptcy court and serve the landlord. A landlord can object to either certification, and the bankruptcy court will hold a hearing within ten days of the objection. If the landlord prevails, the court will lift the stay and the eviction may proceed. However, most states do not allow this option.
Automatic stay does not apply to eviction actions based on endangerment of the property or the illegal use of controlled substances on the property. The landlord must file a certification with the Court stating that the eviction action has been filed or that, within 30 days prior to the petition date, the debtor has endangered the property or used illegal drugs on the property. Normally, relief from stay will be granted to the landlord within 15 days of the filing of the certification unless the debtor timely files a response to the certification and proves at a subsequent hearing that the situation that gave rise to the eviction complaint has been remedied.
In Chapter 7 cases, the trustee has to decide within 60 days of filing the petition whether or not the tenant can keep the lease. When the trustee allows the tenant to keep the lease, the landlord has the right to ask the tenant to prove if s/he can make future rent payments in full and on time. If the tenant cannot furnish the required proof or later falls behind on rent, the landlord can ask the bankruptcy court to terminate the lease and the stay against eviction.