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New York landlords- What if your tenant files for Chapter 7 bankruptcy?

In 2016, 490,365 people filed for Chapter 7 in the United States. If you are a New York landlord, it’s possible that this year, one of your tenants may do the same. How much their filing will affect you depends on whether or not they are current with their rent payments at the time.

If the tenant’s rent payments are up to date, then their tenancy doesn’t need to be impacted by the bankruptcy. If they owe you rent, you must file a proof of claim with the bankruptcy court, which allows you to receive some or all of the balance if the trustee acquires money to pay the tenant’s creditors.

Obligations as a creditor

As a creditor, you are required to respect the automatic stay, which prohibits you from taking any action to collect the arrears unless you receive permission from the bankruptcy court. This means that actions like those below cannot be initiated or continued unless the court consents to lift the automatic stay in your case.

  • Calling or sending letters demanding payment
  • Filing a collection lawsuit
  • Seeking an eviction
  • Applying their deposit against the rent owed

If an eviction order exists

If you sought and received an eviction judgment against the tenant for unpaid rent before they filed for Chapter 7, then they have a right to cure the default under New York law. To stop the eviction, they must-

  • Provide the bankruptcy court clerk with a deposit equal to the amount of rent they will owe you within 30 days of filing
  • Repay all past due rent within 30 days. Once they become current with their rent, they must file a certification stating that they have done so.

If you object to the tenant remaining even if they do file these certifications, then you and the tenant will have to go to court and let the judge decide whether the automatic stay will be lifted so you can proceed with the eviction.

Exceptions to the automatic stay

There are some situations that supersede the automatic stay. You have the right to evict the tenant if they have been using or selling illegal drugs or otherwise putting the property at risk within the previous 30 days. You must file a certification, and the tenant has the right to object. If they do, then both of you will have to go to court, where the truth of your claim will be determined. But if no objection is filed within 15 days, you may proceed with your effort to remove them. To learn more about your legal rights, set up a free in-person initial consultation with Jayson Lutzky. He is a Bronx attorney with an office in the Morris Park neighborhood and can be reached at 718-329-9500. Visit www.MyNewYorkCityLawyer.com to learn more.

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