The Residential Lease Exception to the Automatic Stay

 Posted on October 26, 2016 in Automatic Stay

Filing bankruptcy can stop an eviction, unless the landlord has already gotten a judgment of possession. Don’t wait—timing is crucial.

The “automatic stay” prevents a creditor from taking collection action against you once you file a bankruptcy case. This applies to a landlord to whom you’re behind on rent payments. In particular it can apply to preventing a landlord from removing you out of a residential rental. But there are special rules about this in the form of a limited exception to the automatic stay.

Protecting Your Possession of Your Rental Residence

The automatic stay forbids your creditors from taking any of a list of actions against you and your property. One of the kinds of forbidden actions on that list is “to obtain possession of [your] property” or “to exercise control over [your] property.” (See Section 362(a)(3) of the United States Bankruptcy Code.)

Your “property” doesn’t just include the tangible objects that you own. The term is much broader than that. It includes “all legal and equitable interests... in property as of the commencement of the [bankruptcy] case.” (Section 541(a)(1) of the Bankruptcy Code.)

That includes “leasehold” interests—your right to “possess,” or occupy, your rental property. The automatic stay stops your landlord from taking away your right to your rental, for a period of time anyway.

Timing Is Crucial

But you must still have that right to possess at the point in time that you file your bankruptcy. A key phrase in the statute just quoted above refers to protecting the property that’s yours “as of the commencement of the [bankruptcy] case.” You must have a right to possess your rental at the moment you file your bankruptcy case.

When Do You Lose Your Right to Possession?

Each state has different procedures about how a residential lease is terminated. They have different laws about when tenants lose their right to be in the residence. Those different state laws can make it difficult to determine when precisely the tenant loses the right to possession. So it can be hard to tell when the automatic stay would and would not stop a landlord from evicting a tenant.

The exception to the automatic stay about residential leases tries to clear this up.

It says that an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(b)(22).)

So if your landlord has taken legal action to remove you from rental premises and has NOT yet gotten a judgment for possession of the premises, your bankruptcy filing will stop that proceeding and will stop the landlord from removing you. If that judgment for possession has been entered in favor of the landlord, then it’s too late for bankruptcy to stop the eviction.

A Possibly Helpful Exception to the Exception

However, the Bankruptcy Code provides a procedure which, if you follow rigorously, might enable you to still beat an eviction. You and your bankruptcy lawyer must file, with your initial petition, a certification stating the following.

• Under state law you are “permitted to cure the entire monetary default that gave rise to the judgment of possession.”
• Your state’s law allows that cure even AFTER the landlord received a “judgment for possession.”
• You certify that you have in fact “deposited with the [bankruptcy] clerk” any rent due, including up through 30 days after filing the case.

As long as the landlord does not object, the automatic stay applies and you can stay in the rental.

If your landlord objects, the bankruptcy court holds a hearing within 10 days to determine whether the objection is valid. If the court upholds the objection, the landlord can immediately proceed with the eviction. If the court rules in your favor—that the state law allows for curing the default and you have in fact paid what is required—then you can stay in the rental. (Section 362(l)(1-4).)