DID YOUR TENANT FILE BANKRUPTCY?







There are many "legal obstacles" a landlord must cross before legally regaining possession of the premises. The time it takes to regain possession depends on a number of factors.
 

One "legal obstacle" arises when a tenant files a bankruptcy petition to delay the inevitable eviction. A recent California appellate case addressing this issue is Lee vs. Block. In Lee, a residential tenant failed to respond to the landlord's unlawful detainer complaint and the landlord obtained a default judgment and a writ of possession. Before the sheriff executed the writ, the tenant filed a petition in bankruptcy. The question in the case was whether the landlord was required to apply to the bankruptcy court for relief from the automatic stay per 11 U.S.C. section 362 (a) or whether the pre-bankruptcy judgment has extinguished whatever legal or equitable interest the debtor might have had in the real property- in which event the landlord is not required to seek relief from the bankruptcy court and is, instead, entitled to demand that the sheriff execute the writ of possession forthwith.
 

The California Court of Appeal in Lee vs. Block held that the unlawful detainer judgment extinguished the residential tenant's interest in the property and that a post-judgment bankruptcy filing does not affect the landlord's right to regain possession of his property-because it is not, at that point, property of the estate.
 

What is significant, is the issue of timing. Had the tenant filed for bankruptcy protection at any time prior to the entry of a default judgment, the landlord would have been required to obtain relief from the automatic stay before the bankruptcy court-a process which would increase the landlord's legal expenses and buy the tenant more time to delay the eviction.
 

Part of the court's rationale concerned the practical consequences of a contrary holding which would have had the effect of increasing the cost of doing business-adversely effecting both landlords and tenants. The court stated that a contrary result "is that the cost of doing business as a residential landlord rises with the additional expense of hiring lawyers not only to pursue an eviction in the state court, but also to obtain relief from the stay in bankruptcy court. These added costs necessarily increase the rent that must be paid by low-income tenants. The ever increasing rents for low-income housing, of course, only makes it harder for tenants to pay their rent and therefore leads to more abusive bankruptcy filings. Thus, this vicious cycle repeats and repeats."
 

Lee vs. Block gives clear direction to county sheriffs and their attorneys who may be reluctant to process writs of possession of real property when a tenant has filed a bankruptcy.
 

Lee vs. Block is a state case and, therefore, the sheriff or other levying officer is required to follow the case and execute the writ of possession. We have not seen any cases where the bankruptcy court has interpreted either California statute or theLee case.
 
 


 
 
 
 

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