I began practicing bankruptcy law in the late 90s. During that time, Landlord and Tenant law in the bankruptcy petition was nearly non-existent in consumer cases. The reality was that there were two choices: 1. Tenant was giving up the lease property or 2. Tenant was going to pay the lease payment each month and keep the lease property. It was frustrating for the Landlord’s counsel, but it was a simple situation. The only Landlord’s counsel that had any opportunity to take action was in a Chapter 11 case where the Debtor, often a corporation, wanted to work something out with the Landlord in order to continue to stay in business.
It is not to say that Landlord’s counsel did not take any action at all against consumers. However, the Bankruptcy Code (the “Code”) made it very difficult for the Landlord’s counsel to take action, or to get favorable results from any action that was taken. As a result, the 2005 amendments to the Code addressed the Landlord’s concerns and designed a better process for dealing with residential tenants. The amendments gave the Court, as well as the Landlords and Tenants, more opportunity to do the right thing in a Bankruptcy case with respect to lease situations.
Nevertheless, I believe that these new code sections that were added with the 2005 amendments are often overlooked and simply ignored by seasoned attorneys on both sides of this matter, both Debtor and Creditor. It is a little surprising that more attention is not being paid to lease-related issues in Bankruptcy cases, because the 2005 amendments made it a requirement to include not only the status of lease, but also an explanation of what the Debtor plans on doing about the lease.
Now, if you are a Debtor and you are current on your lease, there really should not be an issue with your Landlord. The Landlord will probably just let you be, due to your current status. However, be aware that, by the Code, a smart Landlord is entitled to, and would likely require you to, sign a reaffirmation agreement demonstrating your assumption of the lease agreement. This is especially true in a Chapter 7 case. The reaffirmation agreement is a post-petition agreement that provides the Landlord the protection of a new contract with the Debtor and creates a new obligation out of the previous agreement that is simply not dischargeable. These agreements are used primarily in a Chapter 7 case, but they are not limited to that Chapter. You see, a Debtor could claim that the rest of the lease agreement is dischargeable under the bankruptcy, especially in a Chapter 7 case. A Debtor could also pay for three months, then stop paying the Landlord and claim the remaining amount of the lease agreement is dischargeable unless there is a reaffirmation agreement or a clear intent of assumption of the lease agreement in the Debtor’s case.
Another issue we have seen arise in the past between Tenants and Landlords is with Debtors whose counsel does not quite understand the 2005 amendments, which results in Tenants being evicted for not assuming the lease agreement in the bankruptcy case or for not signing a reaffirmation agreement. These situations are very difficult because often the Debtor wants to stay in the lease property and wants to pay the rent. We often have to work out a new lease agreement with the Landlord or reopen a Bankruptcy case, which will cost the Debtor $500.00 in fees and $245.00 in court costs just to fix the issue by re-filling a reaffirmation agreement or assuming a lease that should have been taken care of in the initial case. So it is very important that the attorney you hire understands the 2005 amendments and how to deal with your desires.
There are several important elements and sections that apply in Landlord and Tenant situations. However, I think the main Code Section, 11 USC § 362(b)(22), needs to be discussed first and foremost. This section states, “that the automatic stay shall automatically cease 30 days following the bankruptcy filing date to permit landlords to continue any eviction, unlawful detainer action or similar proceeding against a debtor-tenant where the landlord has obtained a judgment for possession against the debtor-tenant prior to the bankruptcy filing.”
The debtor-tenant can challenge the cessation of the automatic stay pursuant to 362(b)(22) by filing and serving a certification within 30 days of the bankruptcy filing date attesting that (1) certain circumstances exist that would allow the tenant to satisfy the monetary default giving rise to the judgment for possession and (2) that the debtor or their adult dependent has deposited any rents coming due in the 30-day period with the bankruptcy court clerk. Additionally, if the debtor certifies, within the 30-day period, that the entire monetary default has been satisfied, then the automatic stay will stay in place and prevent the landlord from enforcing the pre-petition judgment for possession. See 11 U.S.C. § 362(l).
What does all this mean in plain English? Simply put, if a Debtor filing bankruptcy is behind on lease payments, the issue should not be overlooked and dealt with later. The Creditor has a right to terminate the automatic stay within 30 days without the need of court permission and to continue to pursue a case against the Debtor to evict and gain possession of the leased premises. The Debtor does have the ability to cure the default through a workout with the Landlord or curing the past due payment. However, the bottom line is that the Debtor who is not current will need to get current.
So, if you are a Debtor who is considering filing a bankruptcy case, it is imperative to ensure that your rent payments are current. Otherwise, your Landlord, with a good attorney, can still execute all the power the law provides, even if you file a bankruptcy case. Debtors beware if the Landlords actually catch on and exercise their rights under the 2005 amendments. SHHHHHHHH