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Re: Bankruptcy - Landlord Forum thread 344548

Re: Bankruptcy by MrDan (GA) on April 20, 2016 @23:15

                              
All bankruptcy filings are public record, so if you have not received a notice of from the Bankruptcy Court, you or your attorney should be able to confirm fairly quickly whether your tenant is or is not in bankruptcy. This should be your first priority, to verify the bankruptcy filing.

Upon filing a bankruptcy petition, a bankruptcy estate is created. This 'Estate' broadly defines all that's included in the property of the Estate, such as funds used to pay rent, security deposits, and rights created by the lease itself.

Upon filing a petition, the tenant/debtor receives protection from creditors through the 'Automatic Stay'. The Automatic Stay specifically forbids a creditor, including a landlord, from exercising the right of set-off against the tenant/debtor without consent of the court. In other words, a landlord must seek relief from the Court before applying security deposit funds to outstanding debts. A landlord could be held in contempt of court, since the automatic stay is a court order. The court can impose substantial fines for any collection or possession activity by the landlord without first obtaining permission from the bankruptcy court.

A motion to obtain relief from the automatic stay must be filed with the bankruptcy court in order to proceed with the eviction process or security deposit settlement. The time for obtaining relief from the bankruptcy court generally takes 25-40 days in a Chapter 7 petition, provided that the tenant does not contest the relief request. The time period is often longer with regard to a Chapter 13 petition.

Your attorney if he practices in Bankruptcy court should be handling this for you. One reason is, if the tenant reaffirms the lease, the tenant can move right back into the rental property. This is not something a landlord should try to handle themselves, as just saying the wrong thing or not meeting court dead lines could be expensive for the landlord.

As of now, the security deposit is part of the Bankruptcy Estate and is still the tenants property. As the landlord, you will have to file with the Bankruptcy Court and by bankruptcy law, could acquire a secured claim to the extent of the tenant’s security deposit.

Bottom line is, do nothing until you contact an attorney who is admitted to practice in bankruptcy court.
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