Can Bankruptcy Stop Eviction?

Will Bankruptcy Stop Eviction? For a Minute, at Best—

Will a Chapter 7 or Chapter 13  bankruptcy stop eviction? Maybe, but not for long!

A Michigan Chapter 7 or Chapter 13 bankruptcy will stop an eviction proceeding along with all other measures constituting the collection of a debt upon filing.

The "automatic stay" that goes into effect upon the filing of a petition for bankruptcy has the effect, with a few exceptions, of immediately halting all collection attempts against the person filing the petition. Among the things that are "stayed" by this automatic stay are eviction proceedings. Once a bankruptcy petition has been filed, either Chapter 7 or Chapter 13, landlords or other property lessors may not proceed with eviction attempts.

However, if the landlord already has a judgment for possession, the Automatic Stay does not affect the landlord's right to possession of the premises.

So can filing a bankruptcy stop eviction? Yes, but only temporarily. And, in some circumstances, not at all.

Can Bankruptcy Stop Eviction? The Lifting of the Automatic Stay

Bankruptcy will stop eviction most effectively where the landlord does not have a prior judgment for possession of the premises. Where the landlord has already filed a notice to quit premises and received a judgment, the Automatic Stay against Collections will stop, temporarily the eviction.

However, the landlord does have a right to possession of the premises if the filing debtor is unable to quickly, perhaps immediately, cure rental payment deficiencies.

The landlord may, therefore, file a Motion for Relief from the Automatic Stay with the Bankruptcy Court, which will carry with it at least a 14-day notice period to allow the debtor/tenant and other interested parties to object. If there is no objection, the landlord will have his or her Order for Relief from the Automatic stay granted by the court, and he or she may proceed with the eviction as if the bankruptcy had never been filed.

However, the landlord will be unable to demand payment of back-due rents or other monies owed: the bankruptcy will still be effective in its complete discharge of any such debts, once the case is completed.

The Automatic Stay will continue to protect the debtor/tenant from demand for such payment through the bankruptcy case regardless of the movement forward of any eviction proceeding.

Can Bankruptcy Stop Eviction? Prior Judgments for Possession

Where the landlord, prior to the filing of the bankruptcy petition, has received a court judgment for eviction or other action allowing them to re-possess the property, the eviction will not be stopped by the automatic stay so long as the landlord is the holder of a valid rental agreement.

This exception applies only to an action for possession, further, and not to claims for back-rent owed or other money judgments, among others.

Additionally, the debtor retains a right to make up the money default that resulted in the judgment to a certain extent. In other words, the Automatic Stay does not apply at all where there is a prior judgment of possession.

The landlord would have no requirement to file a Motion for Relief from the Automatic Stay in that circumstance. However, there are steps that may be taken to cure deficient rental payments in that instance.

If the debtor/tenant deposits with the clerk of the court within 30 days of the filing of the bankruptcy the entire deficient rent amount and file certain certifications regarding the deficient amounts with the court, the deficiency may be cured and the eviction stopped in that manner, provided that the landlord doesn't have some other, non-rent-related contractual (lease) basis for the eviction, such as those below.

Can Bankruptcy Stop Eviction? Perjury, Use of Controlled Substances, Endangerment to the Property

If the eviction has been premised, as based upon the serving of a certification under penalty of perjury, on the use of controlled illegal substances on the property or endangerment to the property, the automatic stay will not apply unless the debtor successfully contests the certification and proves his or her case in this regard in a series of hearings and other proceedings.

As with the first exception to the automatic stay, above, this exception also does not allow the landlord or lessor to pursue collection efforts for back-rents owed, only to pursue possession of the premises.

The Hilla Law Firm, PLLC are experienced with the interplay between bankruptcy and and are experienced in defending clients dealing with eviction issues.

If you fear eviction, there is no time to waste in discussing your issues with attorney John M. Hilla.

If you are considering bankruptcy and have questions regarding the possibility of eviction before, during, or after your bankruptcy process, please contact us at (734) 743-1489 or complete the Contact Form on this page to schedule your initial consultation. 

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