What Should You do if a Tenant Files Bankruptcy?
A landlord must immediately stop an eviction 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 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.
If you are an Arizona landlord whose tenant has filed for bankruptcy then contact the Dunaway Law Group at 480-702-1608 or message us HERE.
The Dunaway Law Group provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. The Firm limits its practice to the State of Arizona