Tuesday, August 19, 2008

Residential evictions and bankruptcy law

Due to the current economic uncertainty, Shenwick & Associates has been receiving calls from many individuals who are being evicted, and also from landlords who are evicting tenants, with both sides inquiring about the interaction between residential evictions and bankruptcy law. As in many areas of the law, bankruptcy impacts residential evictions. This e-mail concerns the effect of bankruptcy law on residential (not commercial) evictions in New York. If the warrant of eviction has not issued in State Court, as long as the debtor continues to pay rent after filing for bankruptcy, the automatic stay prevents the debtor's landlord from obtaining a warrant of eviction. However, the situation becomes more complex if a tenant files for bankruptcy after the landlord obtains an eviction warrant.

Bankruptcy Code §362(b)(22) provides that the filing of a bankruptcy petition does not stay “…the continuation of any eviction…or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor” subject to §362(l) of the Bankruptcy Code.

Section 362(l)(1) states that,

“Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that--
(A) under non-bankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and
(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.”

In plain English, this provision provides that if a warrant of eviction has issued in a residential landlord-tenant case, then a bankruptcy filing will stay enforcement of the warrant, provided that there are circumstances where the debtor would be permitted under state law to cure the entire monetary amount and the debtor has deposited with the clerk of the court rent that would become due in the 30 day period following the bankruptcy.

Section 362(l)(2) provides that:

“If, within the 30-day period after the filing of the bankruptcy petition, the debtor…files with the court and serves upon the lessor a further certification under penalty of perjury that the debtor…has cured, under non-bankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under paragraph (3).”

In other words, the automatic stay will be effective if, within 30 days of filing for bankruptcy, the debtor can certify to the court and their landlord that they have cured the arrears due for the rent of their residential property. The stay is subject to the landlord's objection under §362(l)(3), which provides:

“(A) If the lessor files an objection to any certification filed by the debtor under paragraph (1) or (2), and serves such objection upon the debtor, the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true.
(B) If the court upholds the objection of the lessor filed under subparagraph (A)
(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and
(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's objection.”

Accordingly, the debtor must truthfully assert that they have cured their rent arrears, as the landlord may object to the debtor's certification. Ten days after the landlord objects, the court will hold a hearing that will determine whether the debtor has cured their rent arrears. If the tenant-debtor has in fact paid all required back rent, the stay will remain in effect. If not, the court will uphold the landlord-lessor's objection and the automatic stay will be immediately lifted, allowing the landlord-lessor to complete eviction proceedings against the tenant-debtor.

The certification is of utmost importance to a bankruptcy client whose landlord has already obtained an eviction warrant. This is because §362(l)(4) allows for the immediate lifting of the automatic stay should the tenant-debtor fail to file the certification if the eviction warrant is listed on the bankruptcy petition. If you are a residential tenant whose landlord has obtained an eviction warrant or a landlord who has obtained an eviction warrant against a now bankrupt tenant, please contact Shenwick & Associates to assess your rights under bankruptcy law.

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