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A. What happens if my tenant files for bankruptcy before I file for eviction or during an eviction?
Call your attorney immediately. The Bankruptcy Code is complicated and if you violate the provisions as a creditor, you could face some harsh penalties and fines. Furthermore, if you wait to exercise your rights, you could potentially cost yourself thousands of dollars in unpaid rent and legal fees. The sooner you call your attorney, the more you can mitigate your damages.
When a tenant files bankruptcy, a legal concept known as the automatic stay goes into effect, and all collection efforts must stop. This means a landlord cannot make demands for rent payments until the Bankruptcy Court says so—even if the tenant-debtor is still living in the property. If the tenant-debtor wishes to stay in the property, the tenant-debtor must complete a section of the bankruptcy petition called Executory Contracts and Unexpired Leases.
The tenant-debtor must: (1) identify the lease agreement; (2) cure all outstanding arrearage; and (3) provide the Bankruptcy Court and the landlord with adequate assurance of future performance under the lease agreement.
If a tenant-debtor properly identifies the lease agreement in his/her bankruptcy petition, but then fails to cure and/or provide adequate assurances, the landlord must petition the Bankruptcy Court for relief from the automatic stay. Once relief is granted, the landlord must then file for eviction in the proper venue, or continue with an ongoing eviction. As you can probably see, any delay in exercising your rights can cost you months of time and, in most cases, lost rent. Call your attorney.
B. What happens if my tenant files for bankruptcy after the eviction process but before I send the 45-Day Letter?
Indiana’s 45-Day Letter Rule states that within 45 days of getting possession of the rental property back from the tenant (for any reason), a landlord must return any portion of the security deposit owed to the tenant along with an itemized list of damages that reduced the amount of the deposit returned to the tenant. If a landlord fails to honor this rule, the landlord must return the entire security deposit to the tenant, pay the tenant’s attorneys’ fees (if any), and the landlord is barred from recovering any damages from the tenant, except for unpaid rent.
How does a tenant’s bankruptcy petition affect the rule? Sending a 45-Day Letter is considered by Indiana courts to be a “collection effort,” because the landlord is often times demanding payment from the tenant. If you remember from above, once a bankruptcy petition is filed, the automatic stay goes into place and all collection efforts must stop. The landlord is now stuck. The landlord cannot make any collection efforts because of the automatic stay, but if the landlord fails to send a 45-Day Letter, he/she will have to return all of the security deposit and forfeit some of his/her recovery rights against the tenant. So what should the landlord do?
After consulting with several knowledgeable bankruptcy attorneys, the attorneys at Griffith Law Group have developed a standard, form letter that complies with both Indiana’s 45-Day Letter Rule and the provisions of the automatic stay in bankruptcy. If your tenant ever files for bankruptcy, call your attorney.
