Bankruptcy and Unlawful Detainer Actions

One of the more common tactics that a tenant will use to delay an Unlawful Detainer action is to file a Chapter 7 or 13 Bankruptcy Petition.  Some of these Bankruptcy Petitions are filed by the tenant and some of them may be filed a person that the tenant is not familiar with, such a Third-Party Claimant.

Over the past ten years there has been a noticeable up-tick in what is referred to as the hijacking of an unrelated party’s bankruptcy filing to stop the Unlawful Detainer case.

What happens when a Bankruptcy Petition is filed that is applied to the Unlawful Detainer Case?  Very simply all activity in the Unlawful Detainer Case must come to a halt. Under Bankruptcy Law once a person files bankruptcy an Automatic Stay immediately applies to any claims against the party who has filed bankruptcy whether the creditor knows or should have known about the filing of a bankruptcy petition.

If the landlord in the Unlawful Detainer case does not stop the prosecution of the Unlawful Detainer case in the face of a bankruptcy filing, there are very serious financial consequences for that landlord.

First, a violation could expose the landlord to an action in the Bankruptcy Case for the violation of the Automatic Stay. If the landlord is found guilty of violating the Automatic Stay the fines, penalties and damages could exceed thousands of dollars.

The remedy for the landlord in countering the Bankruptcy that is filled to stop the Unlawful Detainer lawsuit is to file a Motion for Relief from the Automatic Stay. The Motion for Relief from the Automatic Stay requests permission from the Bankruptcy Court to regain control of the Unlawful Detainer case which will allow the continuation of the prosecution of that case to obtain a judgment for possession of the rental property.

The process for obtaining relief from the Automatic Stay requires a motion to be filed in the Bankruptcy Court on the Official Forms provided by the court for that purpose. However, selection and preparation of the correct Motion for Relief from Stay is critical to the success of the Motion.

There are several grounds upon which the Bankruptcy Court will grant a Motion for Relief from the Automatic Stay. The preparation of the Motion for Relief from the Automatic Stay requires an experienced attorney who has handled these types of Motions in the Bankruptcy Court to select the correct basis for the motion.

The standard time waiting period for a hearing on the motion for the automatic stay is 21 to 30 days. However, each Federal Bankruptcy judge has his or her own calendar and usually hears Motions for Relief from the Automatic Stay once a week and there can be anywhere from 20 to 35 Motions for Relief from the Automatic stay set for hearing on a calendar day for such motions.

Some Bankruptcy Judges have a special procedure for hearing Motions for Relief from the Automatic Stay that can shorten the waiting time for such motions to five to fourteen days.

Once again this will require the preparer of the Motion to be able to locate and use the rules of the Bankruptcy Judge assigned to the Bankruptcy case to have the Motion for Relief from the Automatic Stay as early as possible.

If the Motion for Relief from the Automatic Stay is handled incorrectly it can cost the landlord substantial time in gaining possession of the rental property.

At Fast Eviction Service, help on any of the issues discussed in this article is simply a click or phone call away. Email intake@fastevict.com or call our office at (800) 686-8686 to discuss your questions for a free evaluation of your case.

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This post is filed under: Dealing With Bad Tenants