The filing of a Chapter 7 or Chapter 13 bankruptcy brings with it many benefits. The most immediate of these is the activation of a Federal injunction called the “automatic stay against collections.” The automatic stay requires that all creditors cease and desist any and all (with limited exceptions) collections activity for the duration of the bankruptcy proceeding.
Does the automatic stay then stop a Michigan eviction process also?
The answer: sometimes, but not always, and rarely for very long.
EVICTION AND BANKRUPTCY: PRE-FILING POSSESSION JUDGMENTS
The first thing to understand with regard to eviction and bankruptcy is that the automatic stay does not halt an eviction when the landlord has already obtained a judgment of possession (eviction judgment) from a Michigan state court.
There is a way to re-enforce the automatic stay upon an evicting landlord even where a possession of judgment has been obtained.
The Bankruptcy Code states that, in order to do this, the debtor, with the filing of his or her petition with the Federal Bankruptcy Court, must place on deposit with the Clerk of the Court an amount of money equal to any rent that would become due during the 30-day period after the filing of the bankruptcy petition.
Further, the debtor only has the right to do this if, under Michigan state law (or some other source of “non-bankruptcy law”), the debtor has the legal right to cure the entire monetary default. That is, the entire amount of back rent owed.
A large percentage of bankruptcy attorneys—even experienced attorneys—misunderstand this.
A further hitch lies in the phrase “monetary default.”
In Michigan, there are 2 different forms of eviction proceeding: (1) nonpayment of rent; and (2) termination proceedings.
A landlord may seek to terminate a lease even where the rent is fully current for a variety of reasons: drug use on the premises, damage to the premises, nuisance, lease violations, etc.
If a judgment of possession is obtained in a termination eviction proceeding, the automatic stay simply doesn’t apply at all, and there is no mechanism in the Bankruptcy Code for re-enforcing it.
The Federal Bankruptcy Court simply lacks jurisdiction to adjudicate the matter.
EVICTION AND BANKRUPTCY: NO JUDGMENT OF POSSESSION PRIOR TO FILING
Where there has not been a judgment of possession granted to a landlord by a Michigan state court prior to the bankruptcy filing, the automatic stay is effective in at least temporarily halting an eviction proceeding.
An exception to this is a termination eviction filed due to the endangerment of property or the illegal use of controlled substances by the tenant. In those cases, the landlord must file with the court and serve upon the debtor a certification of the nature of the eviction proceeding.
Otherwise, the eviction is halted.
However, if the rent remains unpaid, it is an easy enough matter for the landlord to file a motion requesting the Bankruptcy Court lift the automatic stay.
The Court will nearly always grant such a motion, so the debtor in a case like shouldn’t count on having more than 17 days of automatic stay protection, if the landlord is quick to act.
EVICTION & MICHIGAN BANKRUPTCY: THE BOTTOM LINE
The bottom line is that, if you are considering filing for bankruptcy in Michigan and are in the midst of an eviction proceeding, it pays to retain a bankruptcy attorney that understands not only Federal bankruptcy law but also Michigan state landlord-tenant law. For a discussion on discharging back rent with the filing of a bankruptcy petition, see my blog post “Can I Discharge My Back Rent in Chapter 7 Bankruptcy?”
The Law Offices of Walter A. Metzen & Associates offers free consultations for those interested in the bankruptcy process and is experienced in determining and advising as to the best course of action when filing Chapter 7 bankruptcy or Chapter 13.