Facts About Eviction and Bankruptcy You Must Know
Sept. 13, 2022
I speak to a lot of people who file a bankruptcy to stop an eviction. Most people are told that if they file a bankruptcy, it will stop the eviction due to the automatic stay. The filing of a bankruptcy stops all legal actions against you and your property. If this is all you know about bankruptcy, then you know enough to be dangerous. Bankruptcy is a serious legal matter and should only be filed by a person who needs debt relief. There are several legal defenses to eviction which can and should be raised in the unlawful detainer eviction court.
The Eviction Processes
The first step in the eviction process is a notice to pay or quit. This notice is typically posted on the door of the premises and gives the tenant three days to either pay the rent or move out. The three-day notice to pay or quit is a prerequisite to the filing of an unlawful detainer eviction action. Once the unlawful detainer is filed the tenant must be served with the summons and complaint, however the tenant has 5 days in which to respond to the complaint by filling an Answer in the Unlawful Detainer court. There are several valid legal defenses to an eviction, however those must be raised in the Answer that is filed with the Unlawful Detainer court. If the tenant fails to Answer, then the landlord can obtain a Writ of Possession which is given to the sheriff who will then post a notice to vacate on the door of the premises. Once the Writ of Possession is issued by the Unlawful Detainer court the bankruptcy stay will not stop the lockout.
The Bankruptcy Processes
If the landlord has obtained a writ or judgment for possession of the property before the filing of the bankruptcy, then under 11 USC 362(b)(22) he has an exception to the automatic stay. This means that the stay of the bankruptcy does not apply to his regaining possession of the property. The timing of the filing of the bankruptcy is very important in this regard. The Debtor/tenant must file the bankruptcy before the writ of possession has been issued by the unlawful detainer court. The purpose of a bankruptcy is to obtain a discharge. A discharge is a legal defense to paying back a debt. If the Debtor/tenant does not have any debt, then they are a bad candidate for bankruptcy. They should fight the Unlawful Detainer proceeding on its merits in the Unlawful Detainer Eviction court. If the Debtor/tenant has other debt and they could benefit from a discharge then they can file a bankruptcy to buy a little time and obtain a discharge of their debt, including the back unpaid rent. I usually recommend filing a Chapter 7 bankruptcy because they are relatively quick, and the Debtor receives the discharge within a few months of filing. Bankruptcy is a matter of public record and can stay on your credit for up to 10 years. The bankruptcy should only be filed by a person who otherwise needs a discharge and must be filed before the judgment for possession is issued by the unlawful detainer court.
In Re: Smith 105 B.R. 50 (1989)
United States Bankruptcy Judge Vincent Zurzolo has authored the definitive legal opinion about stopping an unlawful detainer with a bankruptcy stay. In summary he says, a lease of real property is terminated under California law when the landlord elects to terminate the lease as expressed in the three-day notice to pay or quit. If the tenant does not pay the rent and the landlord files an unlawful detainer, then the lease is terminated, and the tenant has no property interest in the rental. The Debtor’s retention of the physical possession of the premises is not a real property interest protected by bankruptcy law. The stay does not enjoin the landlord from regaining possession of the property. The landlord is stopped from enforcing a money judgment against the Debtor/tenant. The purpose of the stay is to give the bankruptcy estate an opportunity to gather and determine the value of the estate’s assets.
The Automatic stay of the Bankruptcy does not stop a landlord from enforcing a writ of possession or a Sherriff from issuing a notice to vacate. The automatic stay stops the landlord from enforcing a money judgment against the Debtor. The Chapter 7 discharge can discharge back rent. For a bankruptcy to be effective in stopping an eviction it must be filed before the judgment or writ of possession is issued by the unlawful detainer eviction court.