When Eviction Meets Bankruptcy

By: Jeffrey Lynne July 27, 2020 7:13 am

Time to read: 5 Minutes

When Eviction Meets Bankruptcy

What is the impact of a bankruptcy on an eviction?

Recently, evictions have been at a standstill in the state based on, among other things, executive orders which created moratoriums or the suspension of writs of possession. During this pause there are reports of thousands of pending evictions waiting to proceed. In Florida, both commercial and residential evictions move on quick timelines under the statutes to determination whether possession should be turned over to the property. In response, many tenants file for bankruptcy to address the eviction to: negotiate, litigate, or prolong the process. Below discusses the impact of bankruptcy filings on evictions including consequences for the unwary landlord.

The Automatic Stay: A Pause of Collection Activities

The automatic stay found in Section 362 of the Bankruptcy Code Section prevents most creditors from commencing or continuing collection actions. This prohibition is broad and includes activities including filing or continuing a lawsuit, collection letters and phone calls, or aggressive settlement discussions coupled with a threat. Damages may be entered against a landlord or other creditor who violates the automatic stay.

This automatic stay applies to evictions to stop landlords from proceeding with evictions until relief from the stay is provided. This prohibition raises several issues including: at what point does a landlord need to stop the eviction when a bankruptcy case is filed? When is the eviction complete and stay relief is not needed? Sometimes the answer is more obvious, such as when the landlord has not yet filed a lawsuit and the tenant files for bankruptcy. In that case the commencement of a lawsuit for eviction would be a violation of the automatic stay.

But what if the eviction case has been filed, the judgment of possession in favor of the landlord entered, and the sheriff is on the way to remove the tenant from possession when the tenant files for bankruptcy? Does the landlord have to stop the sheriff? In a south Florida case, the bankruptcy court had to determine whether a stay violation occurred when the landlord did not stop the sheriff from removing the tenant when the tenant filed for bankruptcy before the writ of possession was delivered. That case involved a restaurant which was being evicted by its landlord. The landlord filed a lawsuit for eviction and obtained a final judgment for possession following the tenant’s failure to pay rent. While the sheriffs were driving to deliver the writ of possession, the tenant filed for bankruptcy. The tenant’s attorney informed the landlord’s attorney about the filing of the bankruptcy case. The time frame was vital because the bankruptcy was filed at 2:59 p.m. and the landlord obtained possession at 3:30 p.m. The bankruptcy found that the landlord violated the automatic stay by failing to inform the sheriff of the bankruptcy to stop the eviction. Ultimately, the landlord was able to retake possession of the premises due to the tenant’s inability to cure the default; however, this did not alter the bankruptcy court’s finding of a willful automatic stay violation.

Damages for Violating the Automatic Stay

Violations of the automatic stay may result in damages against the landlord or creditor including actual and punitive damages. Recently a six-figure award was entered against a creditor and his lawyer for violating the automatic stay. If uncertain of whether the automatic stay applies, the landlord or other creditor can seek relief from the automatic stay from the bankruptcy court.

Closing Thoughts

Once evictions resume landlords should be cautious and aware of their obligation to stop collection efforts once a bankruptcy is filed…and it does not matter if its “just” 30 minutes. It still could be a willful violation of the automatic stay which subjects the landlord to actual and punitive damages. Landlords should have a strategy for how to manage a tenant bankruptcy filing. Tenants should also be aware of their options and potential limitations on those options before filing for a bankruptcy.

Jeffrey Lynne

Jeffrey Lynne is a partner at Beighley, Myrick, Udell, Lynne + Zeichman, P.A. in both the firm’s Land Use & Zoning and Governmental Affairs & Regulated Industries practice groups. He also chairs the Firm’s Behavioral Healthcare Practice Group and represents clients with local, state and federal zoning, permitting, licensing, and regulatory matters. Mr. Lynne received his undergraduate education at the University of Florida and attended law school at the University of Miami (1997).

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