What Should You do if a Tenant Files Bankruptcy?
If you receive a notice from the bankruptcy court that a tenant you are trying to evict has filed bankruptcy then stop the process! Bankruptcy law is very complicated with severe penalties for any creditors seeking to take action against someone who has filed for bankruptcy. If a tenant files for bankruptcy before you have obtained the eviction judgment then you must stop with the eviction lawsuit.
As soon as a person files bankruptcy an "automatic stay of protection" goes into effect. The Automatic stay of bankruptcy is an injunction that stops; garnishments, lawsuits, foreclosure, repossession, evictions, etc. It is the equivalent of a restraining order that prevents creditors from taking collection actions.
The Automatic Stay of Bankruptcy is not Absolute
The automatic stay is not an absolute and landlords are given the right to file a Motion with the bankruptcy court requesting a bankruptcy just to "lift" the automatic stay. By having the automatic stay "lifted", you may begin the eviction process. It takes approximately 30 days for the bankruptcy court to grant permission to proceed with the eviction. If the tenant files an "objection" to the lift-stay motion then a hearing will be set in the bankruptcy court. If a hearing is required then it may be 2 to 3 months before we can get in front of a bankruptcy judge and get permission to continue with the eviction.
Even under the best of scenarios a non-paying tenant who files for bankruptcy can astronomically expensive for the landlord. Don't try and go it alone, email me at email@example.com or call 480-344-4035.