Bankruptcies can be complicated knowing your rights when a tenant files is crucial.

Bankruptcies can be complicated, and knowing your rights when a tenant files is crucial.

First, some clarification on the types of bankruptcy available to the consumer and the injunctions that accompany bankruptcy filings:

Chapter 7 versus Chapter 13. Individuals who file for bankruptcy are “debtors” and have the choice of filing either Chapter 7, a liquidation, or Chapter 13, a repayment plan. (Chapter 11 is another option, but it’s available to those with extraordinarily high debt and is much less common.)

In a Chapter 7 filing, the debtor essentially hands all of his or her assets over to a trustee, who then decides whether to administer those assets. When a lease is involved, the tenant can assume the lease but usually can only do so if the rent is current. In a Chapter 13 filing, however, the tenant has the option of making the delinquent rent payments current over a period of time, usually no more than six months. More on this point below.

The automatic stay. One of the most important aspects of any bankruptcy filing is the “automatic stay.” This is an injunction that stops creditors from trying to collect debts from the debtor.

Essentially, once a tenant files for bankruptcy, a landlord may take no further action to collect past-due rent, continue with an eviction, or even offset a security deposit. Landlords who violate the automatic stay may suffer serious repercussions.

There are exceptions to this general rule. For example, the U.S. Bankruptcy Code allows a residential landlord to enforce a judgment for possession against a bankrupt tenant if that judgment was obtained before the bankruptcy was filed. In addition, the automatic stay doesn’t apply to tenants who have engaged in illegal drug use on the property or who have endangered the premises somehow. In any event, if there’s any doubt about whether the automatic stay applies, and to what extent, contact your bankruptcy counsel for advice.

Terminating the automatic stay. The Bankruptcy Code’s automatic stay isn’t without its limitations. For example, although the bankruptcy filing can protect a tenant’s past defaults, it won’t necessarily protect any new defaults. In other words, once a tenant has filed for bankruptcy, lease payments must be made on a timely basis going forward. If not, the landlord has good reason to ask the court to permit it to move forward with its eviction against the tenant.

The Tenant’s Options 
The tenant in bankruptcy has several options available when the lease hasn’t expired or hasn’t been terminated prior to the filing.

The tenant may reject the lease. This means the tenant voluntarily agrees to vacate the premises and is therefore no longer bound by the terms of the lease.

On the other hand, the tenant may decide to assume the lease, which means the tenant can reaffirm his or her obligations under an unexpired lease. However, the Bankruptcy Code permits a tenant to do so only if the tenant is (a) current on lease payments or can “cure” any arrears in a prompt manner, and (b) gives “adequate assurance of future performance” under the lease. What does this mean and what can a landlord do to ensure that its rights are preserved?

Curing payment defaults promptly. The Bankruptcy Code requires a “prompt” cure of lease defaults but fails to define what “prompt” means. Most courts will consider payment over six months to be prompt. If the tenant proposes to cure past-due payments over a period of years, on the other hand, the court will most likely reject the proposal.

Adequate assurance of future performance. Once again, the Bankruptcy Code doesn’t define this concept; rather, it’s generally applied by bankruptcy courts on a fact-sensitive basis. Typically, courts won’t rigorously adhere to this facet of lease assumption but may give some consideration to the tenant’s financial condition, ability to pay based on income, and any offers to make prepayment of rent going forward.

When a lease is assumed, both landlord and tenant must continue to comply with all terms and conditions of the lease. Failure of the tenant to do so may be cause for the landlord to seek the court’s permission to terminate the lease.

It is also important to know when debtors must decide what option to pursue. Generally, tenants have 60 days in a Chapter 7 (liquidation) case, or up until a repayment plan is confirmed in a Chapter 13 case, to decide whether to assume or reject a lease. If these deadlines aren’t met—or aren’t extended by the court—the landlord should react quickly and move forward with a remedy.

Asserting Your Claim
Simply stated, a claim is acknowledged when a creditor files a statement with the bankruptcy court stating that the debtor owes the creditor money.

A landlord should file a claim in a bankruptcy case to protect its interests, particularly when the tenant rejects the lease. The rejection of a lease results in several possible claims by the landlord, including: (a) damages for all past-due payments under the lease as of the filing date; (b) amounts due for any unpaid charges or rent that arose after the bankruptcy filing; and (c) lease-rejection damages subject to a cap, which normally won’t exceed one year’s worth of rent due.

Landlords may also be entitled to recover other charges, including attorneys’ fees. However, these claims are afforded different priority under the Bankruptcy Code’s distribution scheme. Therefore, it is absolutely essential to consult with a bankruptcy professional to determine what claims will be paid, and in what order.

What Else Can You Do?
Because tenant bankruptcy can be costly to owners, once the tenant’s financial situation becomes clear, the owner/landlord should consider alternatives. If at all possible, you should negotiate a pre-bankruptcy resolution with a tenant in financial distress. Can the lease be modified to keep the tenant in the property (and paying rent)? Can a peaceful and consensual termination of the lease be negotiated that lets the landlord regain possession of the unit on terms that are workable for the tenant?

These and other options should be explored if at all possible. A carefully negotiated pre-bankruptcy resolution can help you avoid pitfalls if the tenant eventually does file for bankruptcy protection.

Landlords have some other options, as well, when faced with a tenant’s bankruptcy filing. Did the tenant file the bankruptcy petition in good faith? Is this the first time this particular tenant has filed? In other words, is your tenant a serial bankruptcy filer? If so, you may be able to convince the bankruptcy judge that the tenant’s sole purpose in filing was not to reorganize but simply to frustrate his or her landlord’s attempt to regain its property, thus resulting in a dismissal of the tenant’s case.

In any case, bankruptcies can be complicated, and knowing your rights when a tenant files is crucial. Having qualified counsel on board can help a landlord navigate through these difficult issues.

Legal Removal of Unwelcome House Guests

Legal Removal of Unwelcome House Guests

Any uninformed attempt to “evict” an uncooperative and unwanted house guest can be frustrating and costly for both tenant and landlord. The first step is to establish whether the house guest is a lodger, a bonafide house guest, or a roommate. Legal definitions may vary slightly from state to state, so check with our local housing department for details.

Family members and friends can wear out their welcome through an over-extended stay. When this happens, the most general and direct option is to ask them to leave. Beyond a simple request, other legal options to remove a family member will be governed by the laws of your state.

Learn your rights as a Landlord on NationalEvictions.com  Read our Blog. Learn the Process of an eviction in your State. 

Tenant or Licensee?

Before you begin any legal action, you must first determine how the law classifies the unwanted family member: Are they a licensee or are they now a tenant? A family member or friend occupying your home may be considered a tenant regardless of whether a lease was signed or rent was paid. If the family member paid for things like utilities or food, the payment of these expenses can be considered rent. Accordingly, some state laws will treat them as a tenant. To remove them from the premises you will have to file a formal eviction proceeding (known as an unlawful detainer action) as in any other landlord-tenant relationship.

If no form of rent has been paid, many states permit you to simply ask the family member to leave and remove their belongings without any legal proceedings. However, in other states, someone who enters your home and stays with your permission will be classified as a licensee. This status grants the family member more rights than a general guest. To revoke the permission you gave them to remain on your property, you will need to go through the steps of a formal eviction to have them legally removed.

Preparing for Eviction

If your state’s laws classify the family member as a tenant or licensee, your next step is to prepare for an eviction, or unlawful detainer action. Before you can file suit, you must first serve your family member or friend with a notice to vacate (or notice to quit) the premises. This is a more formal way of asking the person to leave your home. The notice must be given before the suit is filed. In some states this notice can be for as little as 3 days prior, in others, as much as 30 days. Each state has its own rules regarding how and when to serve the notice. Be sure to follow all legally required steps. If your family member or friend fails to leave by the requested date, you can then file an eviction petition.

Once you file your petition, you must request an unlawful detainer hearing. This is a short court hearing in which you explain the reason for the eviction and present evidence of the prior notices to vacate. If the judge agrees with you, the judge will issue an order of eviction and a writ of possession (or your state’s equivalent). The order will usually set a vacate date for the family member or friend. If they still refuse to leave in violation of the order, you can then call law enforcement and to have them removed, using physical force if necessary.

Eviction or unlawful detainer actions are not generally complicated lawsuits. However, the rules of tenancy and procedure vary by state. Before jumping into a lawsuit, you should speak with an attorney in your area to learn your state’s rules and local procedures. They can advise you on the correct legal steps required in your jurisdiction. While having an attorney represent you in this type of case is not mandatory, you can avoid more problems by having one. If you fail to comply with all of your state’s eviction procedures you will delay removal of the unwanted guest. You may even find yourself on the receiving end of a lawsuit for unlawful eviction. Remember, follow the law and don’t be tempted to use self-help measures such as changing the locks or physically removing the person yourself.

Protective Order

Finally, if a family member or friend living in your home is abusive and putting you in fear for your safety, the quickest temporary solution under such circumstances is to apply for a protective order from your local family court or criminal court. Depending on the laws in your state, a protective order can exclude the unwanted family member from using the residence for 30 days or for a number of years. Even if a protective order is granted, you should still consider eviction proceedings to remove the unwanted family member permanently.

Rights of Homeowners

In general, if you own and live in the dwelling unit or home, and the individual rents a room in the dwelling, he or she is considered a lodger. As a homeowner, you have the right to terminate the lodger’s tenancy by written notice to vacate. If you are unsure of what the notice should outline, written notice to vacate templates are readily available through a number of reputable online sources.

Written notice is usually served with a 30 day notice period. Once the period expires, any agreement that you may have with the lodger is terminated by operation of the law. Homeowners in these cases are also entitled to police assistance in removing the individual from the home. Formal eviction procedures are not required in these cases.

Rights of Renters

If you are renting a home or apartment, working on a solution within the letter of the law can be more difficult. Lodging laws do not apply to renters. Renters do not own the unit or home, so they are not entitled to the same legal options as homeowners. If you have a house guest and would like them to leave, you must establish whether the guest is a roommate or truly a guest. Unfortunately, the guest can delay any legal action by fabricating a story about an oral rental agreement between you, the renter, and the guest.

To have the house guest removed via legal proceedings, the renter must establish that he or she has control over the unit and is responsible for maintaining the unit. The renter must also prove that he or she is the only person with a set of keys to the unit, that he or she is the only person paying the rent, and that he or she has been living in the unit from the beginning of the lease up to the date of the complaint. Unfortunately, there is a catch. If the house guest has been living in the unit for more than 30 days, the courts might consider him or her a tenant. In this case, you may only terminate tenancy by formal written notice, regardless of whether the individual’s name is on the lease. If the house guest (who is now considered a tenant) does not vacate within the notice period, you will have to begin formal eviction proceedings.

For unwanted house guests that have been living in the rental unit or home for less than 30 days, the laws are disturbingly sparse. Although the law might not recognize the individual as a tenant, any physical attempt to remove the individual could result in a lawsuit. For example, if you place the individual’s property on the lawn or street and change the locks, the individual might attempt to sue for unlawful eviction by claiming that he had a verbal agreement with you. The individual may also attempt to sue for any perceived damages to his or her property. In cases such as this, the best way to protect yourself would be to serve a formal written notice of termination of tenancy. If you feel that written notice will not be enough to get rid of the house guest, do not wait until the last minute to begin the eviction process. Be prepared to file eviction papers as soon as the notice period ends.