WHEN THE TENANT FILES BANKRUPTCY - Crain …

1 when THE TENANT FILES BANKRUPTCY . Landlord- TENANT Law Sterling Education Services August 25, 2015. Houston, Texas H. Miles Cohn Crain , Caton & James, 1401 McKinney St., 17th Floor Houston, Texas 77010. Telephone 713/752-8668. TABLE OF CONTENTS. I. The Automatic Stay.. 1. A. The general rule: BANKRUPTCY code 362(a).. 1. B. An exception for non-residential leases: BANKRUPTCY code 362(b)(10).. 1. C. An exception for residential leases: BANKRUPTCY code 362(b)(22). and 362(l).. 2. D. Obtaining relief from the automatic stay: BANKRUPTCY code 362(d).

2 3. II. Assumption, assignment and rejection of leases.. 4. A. The general rule: BANKRUPTCY code 365(a) and (f).. 4. B. Cure of defaults: BANKRUPTCY code 365(b).. 5. C. Exceptions to the assumption and assignment of leases:.. 7. Section 365(c)(1): assignments without the landlord's consent.. 7. Section 365(c)(3): leases that were terminated prepetition.. 8. D. The TENANT 's obligation pending assumption or rejection: BANKRUPTCY code 365(d)(3).. 9. E. The time limits for assumption or rejection: BANKRUPTCY code 365(d)(1) and (2).. 11. III.

3 The landlord's claim in .. 13. A. The amount of the landlord's claim.. 13. B. The landlord's administrative priority.. 15. C. The landlord's security interests.. 16. I. The Automatic Stay A. The general rule: BANKRUPTCY code 362(a). The automatic stay is the first contact that a landlord or other creditor will have with a new BANKRUPTCY case. This stay, which automatically comes into effect upon the filing of the case, operates to bar any eviction or other enforcement proceeding against the TENANT . Specifically, BANKRUPTCY code 362(a) provides that the filing of a BANKRUPTCY petition operates as a stay of, among other things: (1) the commencement or continuation.

4 Of a judicial .. proceeding against the debtor that was or could have been commenced before the commencement of the [ BANKRUPTCY ] case; . (2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [ BANKRUPTCY ] case; and (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.. This language is broad enough to include any eviction or other enforcement proceeding against a TENANT in BANKRUPTCY .

5 See, , Robinson v. Chicago Housing Authority, 54 316 (7th Cir. 1995); In re Smith Corset Shops, Inc., 696 971 (1st Cir. 1982). B. An exception for non-residential leases: BANKRUPTCY code 362(b)(10). BANKRUPTCY code 362(b) lists various exceptions to the automatic stay, one of which is applicable to non-residential leases. Section 362(b)(10) provides that the automatic stay does not apply to any act by a lessor to the debtor under a lease of non-residential real property that has terminated by the expiration of the stated term of the lease before the commencement of [the BANKRUPTCY ].

6 Thus, the automatic stay will not bar an eviction 1. proceeding with respect to a non-residential lease that has terminated by its own terms before the commencement of the Section 362(d)(10) clearly applies when the stated term of a lease has expired before the BANKRUPTCY . An open question is whether a lease can be terminated by its own terms, . within the meaning of this provision, when it is terminated as a result of the TENANT 's default prior to BANKRUPTCY . The distinction may turn on whether the termination requires the landlord to take action or instead takes effect on its own.

7 In re Salzer, 180 523, 528 (Bankr. Ind. 1993)(month-to-month tenancy held to have terminated by its own terms when the TENANT failed to pay rent); and In re Adkins, 237 816 ( Fla. 1999)( TENANT allowed opportunity to cure and reinstate lease despite judgment of eviction entered pre-petition). C. An exception for residential bankruptcies: BANKRUPTCY code 362(b)(22) and 362(l). The so-called BANKRUPTCY Abuse Prevention and Consumer Protection Act of 2005, commonly known as BAPCPA, added a limited exception to the automatic stay for residential leases as to which a judgment for possession has been issued prior to the filing of the BANKRUPTCY petition.

8 This exception is provided in Section 362(d)(22), but this must be read together with a safe harbor provision, Section 362(l). The latter section provides that the automatic stay will continue, notwithstanding the issuance of a judgment for possession, if the TENANT (i). 1. Section 362(b)(1) should be read together with BANKRUPTCY code 541(b)(2), which provides that a leasehold that has expired before commencement of the case is not property of the BANKRUPTCY estate. 2. FILES with the BANKRUPTCY court, together with his or her petition, a sworn statement that the lease default may be cured and the judgment set aside under state law by a monetary payment to the landlord, and that the TENANT has deposited with the state court one month's post- petition rent, and (ii) FILES a further sworn statement with the BANKRUPTCY court, within thirty days, that the monetary payment necessary to cure the default has been paid.

9 If the first statement is not filed with the petition, the safe harbor is inapplicable and eviction may proceed. Section 362(l) applies only if the judgment for possession can be set aside by the payment of a monetary sum, and hence it is only applicable with respect to monetary defaults. In re Griggsby, 404 83 (Bankr. 2009). Also, note that Section 362(b)(22) applies only to an existing judgment for possession. Thus this exception to the stay is inapplicable if the TENANT has perfected a de novo appeal to county court prior to filing BANKRUPTCY .

10 In re Alberts, 381 171 (Bankr. Pa. 2008). D. Obtaining relief from the automatic stay: BANKRUPTCY code 362(d). Relief from the automatic stay, such as by terminating the stay or by conditioning the stay on monthly rental payments, can be obtained through BANKRUPTCY code 362(d). Section 362(d) can be particularly effective because of the statutory timetable: Pursuant to section 362(e), the stay terminates thirty days after a motion is filed unless the court, after notice and hearing, orders the stay continued pending a decision. This rule has resulted in the usual practice of setting the hearing within thirty days after the motion for relief from stay 3.