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Brent Blanchard
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1915
Experience:  Twelve years experience in all aspects of debtor & creditor BK.
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Here is the situation - a debtor presently in a Chapter 13

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Here is the situation - a debtor presently in a Chapter 13 bankruptcy enters into a residential lease with his wife (not a party to the bankruptcy) for their primary residence. They entered the lease post confirmation of the Chapter 13 plan and without the approval of the trustee or the court. They have now defaulted on the lease and the landlord wants to (1) regain possession and (2) collect on the back due rent with #1 being the primary concern (through state court of course). They can wait until the 13 is over to collect the past due rent. Do they need relief from the stay or not with regards to (1) possession and (2) collection. I do bankruptcy work but not creditor and this has been sent to be by the landlord's attorney. Jurisdiction - Middle District of TN (6th Circuit). Please provide the basis for your answer.
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Brent Blanchard replied 1 year ago.
Thank you for your question, and for having the wisdom to learn more BEFORE taking any action.

With this being a purely POST-petition lease, 11 USC §365(g) does not apply. That one provides for post-petition obligations under a rejected lease to be treated as pre-petition claim under the plan. When a lease existed before the BK filing, arrears can be treated as high-priority administrative claims.

As your question implied that you already know, the automatic stay of 11 U.S.C. § 362 is something to scrupulously avoid violating. That includes post-petition debt creditors--even they are prevented from going after the assets of the BK estate to satisfy those debts. In re Bottone, 226 B.R. 290, 297 (Bankr. D. Mass. 1998) (“as long as the Chapter 13 case is pending . . . the automatic stay … restrains postpetition creditors from taking action against property of the estate”) (quoting In re Woodall, 81 B.R. 17, 18 (Bankr. E.D. Ark. 1987)).

That is almost counter-intuitively contrasted with the fact that *discharge* of post-petition debts is not possible in a bankruptcy case.

At first flush, 11 § 541(a)(1)'s definition of the BK estate might sound like almost everything (“. . . all legal or equitable interests of the debtor in property as of the commencement of the case.”). See In re Lankford, 305 B.R. 297, 301 (Bankr. N.D. Iowa 2004) (“All recognizable interests of the debtors or the estate are afforded the protection of § 362(a). But there are some things that are NOT part of the BK estate.

The solution for a Chapter 13 case post-petition debt creditor (regardless of whether it is a lease or some other obligation) is that the postpetition income stream of the debtor is NOT considered property of the BK estate. In re Howell, 311 B.R. 173, 179 (Bankr. D. N.J. 2004) (automatic stay does not preclude estranged spouse from seeking equitable distribution of non-estate property such as exempt property, postpetition earnings, property excluded from the estate, property abandoned by the trustee or debtor surplus). See also Telfair V. First Union Mortgage Corp. (In re Telfair), 216 F.3d 1333 (11th Cir. 2000,) at p. 1340-41.

It could still get complicated because a Chapter 13 Plan pretty much accounts for all of the postpetition earnings, and there might not be any room to execute on anything left over--there usually isn't any. With the time appropriate to this question, I have not found any case law that clarifies how that would be handled. My first line of inquiry would be into whether the discretionary parts of the debtor's budget would need to be adjusted to allow for the collection efforts.

Thank you.

BAB.
Customer: replied 1 year ago.


We are traveling down the same path. So here is the ultimate question - what about possession of the leased property. The landlord wants possession more than the past due rent and I want to avoid having to put them through the expense of getting a relief from the stay as I anticipate the debtor will fight and just delay it by 60 days. Can the landlord, in state court, proceed against the debtor for possession only without seeking relief from the BK court on the stay and then just wait out the conclusion of the Ch 13 to collect past due rent. TN has a 6 year SOL on contract so they will still have an opportunity to seek collection (secondary to possession) after the Ch 13 stay has ended.

Expert:  Brent Blanchard replied 1 year ago.
Thank you for the follow-up.

A debtor's possessory interest in a leasehold acquired postpetition is NOT an asset of the BK estate, so there is no violation of the Automatic Stay in seeking recovery against that property.

Neither is an action seeking the back rent. I would recommend consulting with a creditor-side BK attorney locally to see how the judges there react to postpetition lawsuits, judgments and garnishments that are purely connected to postpetition lease obligations and resulting debts.

As stated in the cases above, the Stay applies ONLY to assets of the BK estate. With the exception of some oddities like inheritances within six months post-filing (it might be longer with a Chapter 13 case--hasn't come up for any of my clients in 13), if the debtor didn't have it on the date of filing, it's NOT within the scope of the Stay.

I haven't looked into the TN version, but I believe that some states require that back rent be the subject of a legal action totally separate from the eviction. Others just might *require* that back rent be sought in the same lawsuit. My concern is about "compulsory" claims being left out by mistake. If TN has a "summary" eviction scheme, it might not allow back rent in the expedited eviction action.

Thank you.

Please do not forget to leave a positive rating so I can receive credit for my work.

BAB.
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1915
Experience: Twelve years experience in all aspects of debtor & creditor BK.
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