Scroll to Top

What Should I Do if My Tenant Files for Bankruptcy?

By Chandler's Watch / Published on Wednesday, 12 Oct 2016 02:25 AM / Comments Off on What Should I Do if My Tenant Files for Bankruptcy? / 365 views

Bankrupt TenantsWhat should you do in the event that your tenant suddenly files for bankruptcy? You can’t just force him or her to evict your premises or you’ll be in trouble with the law, plus the protections that bankruptcy affords debtors is extensive and foolproof. What now?

What Happens When Your Tenant Files for Bankruptcy

Put simply, bankruptcy law provides debtors a new beginning by enabling her or him to wipe out the majority of her or his debts or create a more manageable repayment scheme. The statute likewise offers debtors some breathing space during the course of the bankruptcy process. As a landlord, it’s crucial that you understand the automatic stay protection afforded to debtors.

The moment your tenant petitions for bankruptcy, the federal bankruptcy statute will instantly impose this automatic stay for safeguarding your tenant from the majority of collection actions by creditors, which includes you, explains one of the real estate attorneys in Denver. This protection basically prevents all creditors from asking or demanding payments, threatening a lawsuit or repossess possessions as payment, and in your case, threatening eviction if your tenant can’t pay the rent owed.

What’s a Landlord to Do?

Because the federal bankruptcy statute governs this automatic stay protection, you should reach out to the federal bankruptcy court in order to request for relief from the automatic stay. You must file a motion stating that you’re requesting the court for consent to proceed with the legal eviction process for a non-paying tenant or any violation of your tenant-landlord lease agreement. Take note, however, that court won’t be issuing the eviction order, but will only grant you relief from the automatic stay in order that you could go ahead and begin the eviction process in your state court.

Requesting for automatic stay relief is a complex process — more so than requesting for an actual eviction. Due to this, you should highly consider getting help from an experienced real estate lawyer. It’s also critical to note that you could face penalties, up to $10,000 for every violation, if you violate the automatic stay protection so you must not conduct any action that the court could consider as a collection activity.