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What Happens To Past Due Rent When A Tenant Files Bankruptcy?

If you have tenants, you may have already dealt with the bankruptcy court. If so, you know how complicated and sometimes frustrating it can be to deal with a tenant in bankruptcy. You must be very careful when taking any action after a tenant files bankruptcy. It is usually in your best interest to consult with an experienced landlord tenant lawyer, especially if you have never had a tenant file bankruptcy while owing past due rent. When meeting with your landlord tenant lawyer, be sure to discuss the following two topics in detail to ensure you understand your legal rights and responsibilities regarding a tenant who filed for bankruptcy relief.

What is a Bankruptcy Automatic Stay?

The Bankruptcy Code prohibits creditors from taking certain actions against a tenant after a bankruptcy case is filed. This is referred to as the automatic stay. It applies in all bankruptcy cases and it applies to all creditors and third parties. All creditors must cease collection efforts, including filing or continuing with a collection action, upon the filing of a bankruptcy petition. You can file a motion with the bankruptcy court to modify the automatic stay for certain reasons. You must receive permission to continue collection efforts or risk being in violation of the automatic stay.

To ensure you do not accidentally violate a provision of the automatic stay, the safest course of action is to stop sending any correspondence to your tenant, do not call your tenant, and do not pursue any further collection actions without first consulting with an attorney. Of course, not all forms of communication are prohibited by the automatic stay; however, you must be careful.

Before taking any action, it is in your best interest to discuss this matter with an experienced landlord tenant lawyer. Violating the automatic stay may result in financial consequences for the creditor, including being responsible for the payment of any costs and damages incurred by the debtor because of the violation of the automatic stay. Furthermore, the court may impose sanctions for violating the provisions of the Bankruptcy Code.

The Automatic Stay and Guarantors

The automatic stay only applies to the debtors; therefore, in some cases, you may be able to pursue a guarantor or other third party for the money you are owed. However, you must be careful because some guarantors may be protected. For example, if a tenant files bankruptcy and his mother is the guarantor, you must be sure she is not in bankruptcy or otherwise protected before pursuing her for the debt. Again, not all guarantors or third parties are protected under the Bankruptcy Code. Before pursuing a guarantor, consult with a landlord tenant lawyer who can help you determine your rights and your legal options for pursuing unpaid rent after a bankruptcy case is filed.

Filing a Bankruptcy Proof of Claim

In a Chapter 7 bankruptcy case, you do not file a claim until you are notified to do so by the court. Some Chapter 7 cases are no-asset cases, meaning there are no funds or assets available to pay unsecured creditors. In this case, you may have no recourse to pursue past due rent payments. If the tenant files a Chapter 13 bankruptcy case, the court notifies creditors to file claims for debts owed. You have a limited time to file a proof of claim; therefore, gather all of your documents pertaining to the account and file your proof of claim immediately.

The court reviews each claim filed and objections to any claim filed incorrectly or without the proper documentation. If you have never filed a bankruptcy claim, you may want to consult with a landlord tenant lawyer before filing the proof of claim to ensure you have the proper documentation required by the court. This can avoid a delay in payment or a denial of your claim.

Contact an Experienced Jacksonville Landlord Tenant Lawyer

“Attorneys Who Aggressively Protect Your Rights”

The attorneys of Welch and Avery represent clients throughout Duplin County, Onslow County and the surrounding communities. Call our office at (910) 405-8459 or contact us online today to speak with an experienced landlord tenant lawyer.

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