Mesa AZ | Landlords and Bankruptcy Filings

Can a Landlord Evict a Tenant in Bankruptcy?

Yes.  A landlord can evict a tenant in bankruptcy if the landlord has obtained a court-ordered judgment for possession before the tenant filed.  If the tenant files for bankruptcy protection before the landlord can obtain a judgment, the landlord can still try to evict the tenant by asking the court to lift the automatic stay.  In most cases, the judge will lift the stay because a lease agreement doesn’t affect the value of the tenant’s estate.  Keep in mind that if the tenant’s rental is far beyond the tenant’s means, the trustee may not allow the tenant to stay in the rental.

 My landlord filed for Chapter 7 bankruptcy protection.  Now What?

Setting aside the bankruptcy for a moment, the tenant is under contract to pay rent each month on a certain date.  The tenant must continue to pay the rental payments in a timely manner.  There is likelihood that, because the landlord filed bankruptcy, the property may be seized and sold and the tenant is listed as a creditor.  The tenant can attend the meeting of creditors (341 Meeting) to state that the rent is current and doesn’t know to whom the rent payments should go.  The Trustee will likely escrow the rent until the ownership is clarified.  The tenant can also claim that the landlord holds the last month’s rent, which is due back at the end of the rental contract.

Until the tenant knows to whom to send the rent, he should open an escrow account in a bank of his choosing and continue to pay his rent into that account.  Get a signed receipt when handling over the escrowed back rent and demand proof of ownership.  Just in case the property is seized and sold and the new owner does not want renters or will raise the rent, the tenant should be prepared to move.

The Protecting Tenants at Foreclosure Act of 2009 allows tenants to stay in the property until the end of the lease.  Month-to-month tenants are given 90 days from the date of sale.  There are two exceptions:  (1) If the new owner plans on moving into the rental property, the tenant (lease or month-to-month) will then have only 90 days to stay in the property; or (2) if you rent in a city with rent control or “just cause” eviction protection, just changing ownership from the owner to the bank does not qualify as “just cause” and can prevent the owner from evicting you.

My landlord filed for Chapter 13 bankruptcy protection.  What happens to me?

Rent should still be paid to the landlord, and the rental monies the landlord holds as part of the contract/lease should still be in escrow.  Demand proof.  If the tenant discovers the landlord is in arrears with his mortgage company for the rental property, the tenant should demand proof that the escrowed money the landlord holds is still in good stead.  Otherwise, the tenant can escrow one or two months’ rent in a bank of his choosing.  The tenant must make it very clear that the arrearage is the reason for escrowing the money and file that reason with the bank that holds the account.

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Landlords and Bankruptcy Filings, or any other Bankruptcy matters, please feel free to contact Joel E. Sannes at 480.461.5307, or log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.

Leave a Reply