Bankruptcy and the Impending Increase in Evictions

The economic crisis associated with the global pandemic is likely to result in extremely high numbers of both household and commercial evictions. As government-imposed eviction moratoriums end, and as federal unemployment benefits are curtailed, we expect to see considerable bankruptcy activity prompted by rent defaults.

What will this mean for tenants contemplating bankruptcy, and for landlords who receive bankruptcy notices?

Residential tenants who have fallen behind on their rent need to understand that while personal bankruptcy does not eliminate the prospect of eviction, it may provide some critical breathing space. A Chapter 7 bankruptcy filing will result in an immediate automatic stay that temporarily freezes the eviction process. The filing should give the tenant some time to locate new housing and move out, although that time is not unlimited. If the tenant wants to stay in the rental, and can repay the missed rent over time, a Chapter 13 filing could give the tenant the opportunity to cure the default and remain in the residence. Chapter 13 can also help individuals who have small businesses that have leased commercial space as a proprietorship. For companies facing lease termination, a Chapter 11 may be the only bankruptcy option available. There certainly may be non-bankruptcy options for tenants seeking to work out a payment arrangement with the property owner.

It is important not to delay in seeking advice as to whether a bankruptcy filing is an option. The automatic stay does not help a tenant if the landlord has already obtained a court order directing eviction. A bankruptcy filing must take place before the court hearing.

For both residential and commercial property owners, all collection action, including any pending court proceedings, must stop immediately once you learn that your tenant has filed a bankruptcy petition. Any actions taken by the landlord after the bankruptcy filing and without Bankruptcy Court permission are void, and can subject the landlord to sanctions. At the point the landlord has notice of the bankruptcy filing, the landlord should contact counsel to discuss options, including moving for relief from the bankruptcy stay to permit lease termination and eviction to continue.

Whether you are a tenant or a property owner, let us know if we can help answer your concerns about rent defaults and bankruptcy.

Contact the Seattle bankruptcy attorneys at Wenokur Riordan PLLC today at (206) 724-0846 to discuss your situation.