Monday, November 18, 2013

Bankruptcy & Litigation Series: #6 Eviction - Tenant Bankruptcy

When one of the parties in a landlord-tenant relationship goes bankrupt, the result is very different depending on whether it is the landlord or the tenant.  As described in the previous post, when the landlord files for bankruptcy, the lease may continue even if the landlord abandons it to the trustee.  But what happens to a Landlord or Eviction Suit when the Tenant files for bankruptcy?

Just like a collection action, an Eviction proceeding is automatically stayed during the pendency of the filing.

The tenant can elect to assume or reject the lease.  If the tenant assumes the lease, any arrears must be brought current.  The landlord can file a motion for relief from stay to proceed with the eviction, but cannot pursue the debtor for pre-petition unpaid rents.   If the debtor assumes the lease, his financial obligations to the tenant must be either current, or in the case of a debtor in possession, must provide adequate assurances (in the form of money) that he can continue to afford his maintenance of the lease obligations.  Otherwise, the lease is deemed rejected.

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