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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Locked tenant out last night for several months of non-payment

Customer Question

Locked tenant out last night for several months of non-payment on a commercial lease. Tenant filed Chap 11 this morning. Am I required to let him back on premises?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 4 years ago.

The issue here is whether or not your lockout violates the 11 USC sec 362 "automatic stay." The purpose of the automatic stay is best explained in the following oft-quoted passage from the legislative history of the Bankruptcy Code (HR Rep No. 95-595, 95th Cong, 1st Sess (1977), reprinted in 1978 US Code Cong & Ad News 5963, 6296):

  • The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.
  • The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that.

 

If your lock out operates as a collection effort (i.e., to encourage payment of past-due rent), or otherwise impairs the debtor in possession/trustee from obtaining the property of the bankruptcy estate (e.g., office equipment, trade fixtures, inventory, etc.), then it violates the automatic stay and you must unlock the doors.

 

Hope this helps.

 

 

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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33786
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 4 years ago.

The lock out occurred prior to the bankruptcy filing - does that make a difference....and do we have a right to just hand him a 48-hour eviction notice upon unlocking the door as the lease states?

 

thanks for your help

Expert:  socrateaser replied 4 years ago.

It doesn't matter that the lockout was prior to the filing, because the lease still has value, and it is now the property interest of the bankruptcy estate. It would be different, were the lockout by the sheriff subject to an already issued writ of possession. That would mean that the lease and tenant's possession was terminated before bankruptcy.

 

Now that the bankruptcy is filed, you cannot attempt to evict, because that interferes with the debtor's reorganization efforts.

 

That's my view. I realize you've been getting differring opinions. But, if you want to be safe, then you would ask the court to lift the stay before proceeding with any further actions.

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