8.3.3 Bankruptcy Code

Filing bankruptcy may be a remedy for some tenants in default. The Bankruptcy Code requires that the trustee assume or reject unexpired leases within a period of time.1  If assumed, the debtor’s default must be cured.2

Evictions are automatically stayed by the filing of a bankruptcy petition.3  The landlord’s efforts to evict, seize tenant property, or collect rent after the tenant has filed a petition in bankruptcy violates the automatic stay and justifies the award of damages and attorney’s fees.4  Attorneys acting on behalf of landlords or other creditors may be personally held in contempt for their participation in stay violations.

There are two exceptions to a § 362 bankruptcy stay of evictions: the eviction judgment was obtained prior to bankruptcy filing5  and an eviction based on “endangerment” of property or illegal drug use on the property by tenant.6  The latter exception requires that a certification be filed with the bankruptcy court.

A landlord may move for relief from the automatic stay in certain cases.7  Many housing issues will be litigated through opposition to relief from the stay or motions to vacate the stay.

The Bankruptcy Code prohibits a governmental entity from denying, revoking, or suspending a grant based on nonpayment of discharged pre-petition debt.8  As such, bankruptcy petitions, particularly Chapter 13 reorganizations,9  can be a powerful remedy for public housing tenants who face eviction for nonpayment of rent because their subsidy may be considered a government grant.10

• 111 U.S.C. § 365(a).
• 211 U.S.C. § 365(b).
• 311 U.S.C. § 362 (a)(3); see In re Smith Corset Shops, Inc., 696 F.2d 971, 976 (1st Cir. 1982); In re Burch, 401 B.R. 153 (Bankr. E.D. Pa. 2008).
• 4See In re Ozenne, 337 B.R. 214 (9th Cir. BAP 2006); Pettite v. Baker, 876 F.2d 456 (5th Cir. 1989).
• 511 U.S.C. § 362(b)(22); In re Brown, No. 95 B 16825, 1995 WL 904913, at *3 (Bankr. N.D. Ill. Dec. 19, 1995) (holding that a lease is not unexpired and therefore subject to assumption if it was terminated prior to the bankruptcy filing, but also that the point in the eviction process when a lease “terminates” is determined by state law).
• 611 U.S.C. § 362(b)(23).
• 711 U.S.C. § 362(d).
• 811 U.S.C. § 525(a).
• 9For additional discussion of Chapter 13 bankruptcy, see Section 5.1 of the chapter on defending home ownership.
• 10In re Stoltz, 315 F.3d 80, 89 (2d Cir. 2002) (finding that eviction of public housing tenant for pre-petition rent debt would revoke a protected government grant in violation of 11 U.S.C. § 525(a)); contra Hous. Auth. v. Eason, 2009-992 (La. 6/26/09), 12 So. 3d 970 (declining to follow Stoltz where pre-petition debt was discharged in a Chapter 7 bankruptcy), rev’g 2008-0525 (La. App. 4 Cir. 03/04/09); In re Valentin, 309 B.R. 715 (Bankr. E.D. Pa. 2004) (finding that 11 U.S.C. § 525(a) prohibits Housing Authority from barring future participation in the public housing program based on discharged rent debt, but does not bar eviction for nonpayment).