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Attention Landlords: How to Deal With a Bankrupt Tenant

There are two kinds of people: tenants and landlords. And they will always have to work the issues out between them for housing in our cities to function properly.

One big issue that comes up in landlord/tenant disputes is that of the bankrupt tenant. By bankrupt we don’t mean just broke, but someone who is formally going through the bankruptcy procedures as set out in the U.S. Bankruptcy Code, whether this is in the form of a Chapter 7 liquidation, or a Chapter 13 repayment plan.

Prior to 2005, a tenant bankruptcy could impede a landlord's ability to proceed with a court-ordered eviction proceeding. A tenant could easily stop an eviction by filing for a Chapter 7 or Chapter 13 bankruptcy. Once the tenant filed for bankruptcy, an "automatic stay" prevented all creditors, including landlords, from pursuing the repayment of debt.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act changed the prior law. The landlord can now 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 that case, the landlord can ignore the automatic stay.

But this is where things begin to get complicated. If you are a landlord, or even if you are a tenant, you have to know that if the eviction is for non-repayment of rent. If that is the case, then sometimes certain exceptions can apply, usually called a "cure." There are also issues of filing certifications and making objections before a bankruptcy court.

Because the situation is complicated the best thing, if you think that your tenant is hiding behind a bankruptcy, is to contact an attorney immediately. In this case, a real estate attorney, not a bankruptcy one.

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