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Protecting Property Rights: Landlord Rights During Tenant Bankruptcy

When the tenant falls behind in their rent, the law would ordinarily allow the landlord to begin eviction proceedings, in accordance with the procedures outlined in North Carolina law. However, the landlord must be careful if the tenant declares bankruptcy. Then, they could face penalties if they try to evict the tenant. Landlords should consult with an experienced attorney who can guide them through the legal process.

Bankruptcy law supplements North Carolina landlord-tenant law, and in some instances, it could take primacy over state statutes. Thus, there are principles of bankruptcy law that could apply to situations that would ordinarily be solely a matter of breach of contract. What may seem like a simple resolution could get tied up in bankruptcy court.

The Automatic Stay May Delay or Freeze Evictions

One of the main features of bankruptcy law that can impact a tenant is the automatic stay. The law stops a creditor from taking action against the debtor or their property at the moment they file for bankruptcy. A creditor can face harsh consequences if they violate the automatic stay. They can be ordered to pay actual damages and attorney’s costs. In extreme circumstances, the landlord may even have to pay punitive damages. In other words, landlords cannot act unilaterally, and they need to apply an abundance of caution.

The automatic stay can apply when the tenant declares bankruptcy. At that moment, the landlord cannot evict the tenant for falling behind on their rent. Anything that they do would have to proceed through the bankruptcy court. Only the court can approve an eviction, and it may only happen after a delay of months.

Landlords Would Need to Seek the Bankruptcy Court’s Permission to Evict

The landlord would have to specifically ask the court to lift the automatic stay to allow for eviction. Usually, the judge would grant this request because the eviction would not harm creditors who have a right to the debtor’s assets. However, the landlord would need to go through the court process first, and the approval may not be instantaneous. In the end, everything is up to the court.

Thus, landlords may not want to delay beginning the eviction process when the tenant falls behind on their rent. They may lose the right to evict for some time if the tenant’s financial problems lead to bankruptcy, compounding the landlord’s losses.

The Landlord Can Evict Before the Tenant Declares Bankruptcy

The landlord has the right to evict the tenant for nonpayment of rent in accordance with North Carolina landlord-tenant law. Nonpayment of rent is a breach of contract, and the landlord can take action. If the tenant has not declared bankruptcy, the landlord can act according to the law, following the legal procedures for eviction.

If the landlord already had a court order for an eviction, the tenant’s filing for bankruptcy will not put a halt to it. In 2005, Congress changed federal law (which applies in bankruptcy, since it preempts the state law) to allow landlords to evict after they have obtained a court order. The automatic stay would not stop the eviction. The landlord is not even obligated to allow the tenant to cure by catching up on the rent, although the landlord may choose to permit this at their discretion.

Contact a North Carolina Eviction Attorney Today

The attorneys at Crawford & von Keller can provide you with legal advice that could help protect your rights as a landlord, while helping you remain in compliance with North Carolina and federal law. It is crucial that you not act alone because you could end up running afoul of your own legal responsibilities. Contact us to discuss your case with one of our attorneys.

Protecting Property Rights: Landlord Rights During Tenant Bankruptcy

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