§ 36.35     Certification About Eviction Judgment and Rent Deposit
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 36.35, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

One of the more perplexing new threshold considerations framed by BAPCPA is buried among the many new exceptions to the automatic stay in § 362(b). It is specific to debtors defending an eviction, unlawful detainer or similar proceeding by a lessor of residential property in which the debtor is a tenant. Two new provisions of the Code have to be read together to get the full flavor of why this is a pressing consideration at the commencement of a Chapter 13 case.

[2]

It all begins with a new exception to the automatic stay:

(b) The filing of a petition . . . does not operate as a stay—
(22) subject to subsection (l), under subsection (a)(3), of the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.1
[3]

Read by itself, new § 362(b)(22) states that the petition in a Chapter 13 case does not operate as an automatic stay of an eviction or unlawful detainer action with respect to a residential lease if the lessor obtained a judgment for possession before the petition. But you can’t read new § 362(b)(22) alone because of the introductory “subject to subsection (l).” Section 362(l) conditions the new exception to the automatic stay in § 362(b)(22) as follows:

Except as otherwise provided in this subsection, subsection (b)(22) shall apply on the date that is 30 days after the date on which the bankruptcy petition is filed, if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that—
(A) under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and
(B) the debtor (or an adult dependent of the debtor) has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.2
[4]

Reading § 362(b)(22) and § 362(l)(1) together, the exception to the automatic stay with respect to continuation of an eviction or unlawful detainer action when the lessor of residential property has a prepetition judgment for possession applies 30 days after the petition if the debtor “files with the petition and serves upon the lessor” the certification described above. Awkwardly, and by negative implication, the automatic stay does come into effect at the filing of a Chapter 13 petition—notwithstanding a prepetition judgment for possession and a pending eviction or unlawful detainer action—if the certification required by § 362(l)(1) is filed with the petition and served on the lessor.

[5]

There are quite a number of predicates in the interaction of §§ 362(b)(22) and 362(l)(1). The new exception to the automatic stay only applies to the “continuation” of an eviction, unlawful detainer action or similar proceeding, not to the commencement of such an action. The eviction or unlawful detainer action must be already pending at the petition. Only residential property in which the debtor resides as a tenant is subject to this new exception to the stay, and there must be a lease or rental agreement. The lessor must have “obtained”—past tense—a judgment for possession before the petition. If all these conditions are satisfied, the new stay exception in § 362(b)(2) triggers 30 days after the Chapter 13 petition unless the debtor files with the petition and serves on the lessor the new certification.

[6]

The certification and other requirements in new § 362(l)(1) are redundantly and more specifically described in new § 362(l)(5):

(A) Where a judgment for possession of residential property in which the debtor resides as a tenant under a lease or rental agreement has been obtained by the lessor, the debtor shall so indicate on the bankruptcy petition and shall provide the name and address of the lessor that obtained that pre-petition judgment on the petition and on any certification filed under this subsection.
(B) The form of certification filed with the petition, as specified in this subsection, shall provide for the debtor to certify, and the debtor shall certify—
(i) whether a judgment for possession of residential rental housing in which the debtor resides has been obtained against the debtor before the date of the filing of the petition; and
(ii) whether the debtor is claiming under paragraph (1) that under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment of possession was entered, and has made the appropriate deposit with the court.
(C) The standard forms (electronic and otherwise) used in a bankruptcy proceeding shall be amended to reflect the requirements of this subsection.
(D) The clerk of the court shall arrange for the prompt transmittal of the rent deposited in accordance with paragraph (1)(B) to the lessor.3
[7]

Reading new § 362(l)(1) and (5) together, to avoid expiration of the stay 30 days after a Chapter 13 petition with respect to a pending eviction or unlawful detainer action by a lessor of residential property when the lessor has a prepetition judgment for possession, the debtor must do all of the following:

 

  
Indicate on the petition that there is a judgment for possession of residential property in which the debtor resides as a tenant under a lease or rental agreement.
 

 

 

 

  
Provide on the petition (and on the certification immediately below) the name and address of the lessor that obtained the prepetition judgment for possession.
 

 

 

 

  
File with the petition and serve on the lessor a certification under penalty of perjury that:
 

 

 

 

  
There is a judgment for possession of residential rental housing in which the debtor resides, obtained against the debtor before the petition;
 

 

 

 

  
There are circumstances under which the debtor would be permitted by nonbankruptcy law to cure the entire monetary default that gave rise to the judgment for possession, after that judgment was entered; and
 

 

 

 

  
Any rent that “would become due during the 30-day period” after the petition has been deposited with the clerk of the bankruptcy court.
 

 

 

[8]

If the certification is filed with the petition and served on the lessor and if 30 days of postpetition rent is deposited with the clerk of the bankruptcy court, the automatic stay stops a prepetition eviction or unlawful detainer action notwithstanding a prepetition judgment for possession—unless the court orders the new exception to the automatic stay to apply under § 362(l)(3), discussed below. If the debtor indicates on the petition that there was a prepetition judgment for possession of residential rental property in which the debtor resides but does not file the certification described above, then § 362(l)(4) provides:

(A) subsection (b)(22) shall apply immediately upon failure to file such certification, and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and
(B) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under subsection (b)(22).4
[9]

Section 362(l)(4)(A) contemplates that the new exception to the stay in § 362(b)(22) becomes immediately effective without “relief from the stay” when there is a prepetition judgment for possession and an eviction action pending but the debtor does not (cannot?) certify that there are circumstances under nonbankruptcy law that would permit the debtor to cure the entire monetary default and that a deposit of 30 days’ rent has been made to the clerk of the bankruptcy court. The directive in § 362(l)(4)(B) that the clerk of the bankruptcy court “immediately” serve the lessor and the debtor with a “certified copy of the docket” indicating the “absence of a filed certification” is perhaps unique in the whole of bankruptcy practice. It will be interesting to see if the Judicial Conference imposes a fee on lessors for performance of this statutory imperative. Given the laundry list of conditions in § 362(b)(22) and (l), it is anything but clear how a certified copy of the docket will indicate the “applicability of the exception to the stay under subsection (b)(22).”

[10]

New § 362(l)(5)(D) requires the clerk of the bankruptcy court to promptly transmit the 30 days’ rent deposited by the debtor to the lessor. Bankruptcy court clerks aren’t experienced at handling money for anyone except the U.S. Treasury. The receipt, accounting for and disbursement of rent by clerks’ offices will likely be a mess for a while—until they get the hang of doing collection work for landlords.

[11]

Not to mention, how are Chapter 13 debtors (or their attorneys) going to make the deposit contemplated by § 362(l)(1)(B)? The certification under penalty of perjury that must be filed “with the petition” requires the debtor to certify that the appropriate deposit has been made with the bankruptcy court. The deposit must be made before the petition and certification are filed, or at least simultaneously with that filing, else the certification immediately becomes a false oath by the debtor.

[12]

Is the debtor supposed to run down to the bankruptcy court clerk’s office and tender 30 days’ rent before counsel transmits the petition through the ECF system? It is not imaginable that the clerk’s office will accept the debtor’s money until it has a case with which to associate the money. Will bankruptcy court clerks’ offices accept rent deposits by credit card in the same manner that some clerks’ offices are accepting filing fees? Will debtors’ attorneys accept money from their clients for rent deposits and then transmit that money to the clerks’ offices by credit card, by mail or in some other fashion? The mechanics of this new rent deposit are shaky. The statute is crystal clear that the deposit must be made in time for the debtor to file “with the petition” a certification under penalty of perjury that the deposit has been made. These new statutory requirements are onerous, if not purposefully designed to be nearly impossible of performance.

[13]

If the debtor files the (first) certification with the petition and makes the required deposit of 30 days’ rent with the bankruptcy court clerk, new § 362(l)(2) then requires the debtor to file a second certification within 30 days after the petition:

If, within the 30-day period after the filing of the bankruptcy petition, the debtor (or an adult dependent of the debtor) complies with paragraph (1) and files with the court and serves upon the lessor a further certification under penalty of perjury that the debtor (or an adult dependent of the debtor) has cured, under nonbankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought by the lessor, subsection (b)(22) shall not apply, unless ordered to apply by the court under [§ 362(l)(3)].5
[14]

Piling ifs on top of ifs, if the debtor cures the entire monetary default that gave rise to the judgment for possession, then the second certification filed and served on the lessor within 30 days after the petition will prevent the new stay exception in § 362(b)(22) from applying, maybe. If the debtor timely files the first certification, serves it on the lessor and makes the deposit of 30 days’ rent, but then fails to pay the entire monetary default within 30 days of the petition and thus cannot file the second certification, the exception in § 362(b)(22) applies immediately, without relief from the stay, and the clerk is required to serve a certified copy of the docket on the lessor (and on the debtor) to enable the lessor to complete the process of recovering possession of the property.6

[15]

Even if the debtor does everything described above—timely files the two certifications, makes the initial deposit of 30 days’ rent and cures the entire monetary default—the lessor can file an objection to any certification, triggering an accelerated court determination whether the new stay exception in § 362(b)(22) should apply:

(3)(A) If the lessor files an objection to any certification filed by the debtor under [§ 362(l)(1) or (2)], and serves such objection upon the debtor, the court shall hold a hearing within 10 days after the filing and service of such objection to determine if the certification filed by the debtor under paragraph (1) or (2) is true.
(B) If the court upholds the objection of the lessor filed under subparagraph (A)—
(i) subsection (b)(22) shall apply immediately and relief from the stay provided under subsection (a)(3) shall not be required to enable the lessor to complete the process to recover full possession of the property; and
(ii) the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court’s order upholding the lessor’s objection.7
[16]

At the risk of understatement, new § 362(b)(22) and (l) are gigantic traps for debtors coming into Chapter 13 cases with defaulted residential leases. State landlord-tenant laws vary widely with respect to judgments for possession and actions for eviction. A Chapter 13 debtor will only know whether nonbankruptcy law permits cure of the entire monetary default that gave rise to the prepetition judgment for possession “after that judgment for possession was entered,” based on the advice of counsel. The debtor’s certification under penalty of perjury will be based on that advice. Quickly collecting all of the material facts with respect to a debtor’s prepetition litigation with a landlord will not be simple. State law will not always be clear with respect to the circumstances under which monetary defaults can be cured after a judgment for possession of residential property.

[17]

Where are Chapter 13 debtors going to get the money to make the deposit of 30 days’ postpetition rent and to cure the entire monetary default within 30 days of filing? The certifications in new § 362(l)(1) and (l)(2) state that “the debtor (or an adult dependent of the debtor)” has made the deposit of 30 days’ rent or has cured the entire prepetition monetary default. Does this mean that no other source of funds can be used else the certifications cannot be truthfully signed by the debtor?

[18]

Consistent with new § 362(l)(5)(C), quoted above, Official Form 1—the petition—has been modified by the rules drafters to contain a “statement by a debtor who resides as a tenant of residential property.” There is a new box to check indicating that a landlord has a prepetition judgment for possession of the debtor’s residence. If this box is checked, the name and address of the landlord must be indicated. Then there are other boxes to check to claim circumstances under applicable nonbankruptcy law that would permit the debtor to cure the monetary default that gave rise to the prepetition judgment of possession and a box stating that the “debtor has included in this petition the deposit with the court of any rent that would become due during the 30-day period after the filing of the petition.”

[19]

The phrase “included in this petition” is incomprehensible in this context. Debtors’ counsel are cautioned that the statutory requirement is a certification that the debtor “has deposited with the clerk of the court” any rent that would become due during the 30-day period after the petition. Especially in an ECF district, it will take imagination for a Chapter 13 debtor to “include in this petition” the 30-day rent deposit required by § 362(l)(1)(B).

[20]

Don’t overlook that new § 362(l)(1) requires that the first and second certifications be served on the lessor to prevent the immediate evaporation of the stay under § 362(b)(22). The new statement added to Official Form 1 will be filed with the bankruptcy court. To satisfy § 362(l)(1), debtor’s counsel should also serve the petition on the lessor that holds the prepetition judgment for possession. Service of the certification on Official Form 1 is not the same as notice of the petition. For example, if the lessor is a corporation, service of the § 362(l)(1) certification must be addressed to an officer or a managing or general agent consistent with Bankruptcy Rule 7004(h).8

[21]

Landlords went to a great deal of trouble to draft the labyrinth that is new § 362(b)(22) and (l). There are anecdotal reports that in some districts some debtors filed “abusive” serial bankruptcy petitions to stop eviction actions by residential landlords. Section 362(b)(22) and (l) are a Rube Goldberg solution to that problem. Even in a perfectly ordinary first filing by a debtor engaged in state court battle with a landlord, the maze described above must be traversed just to keep the stay in effect while the debtor works on rehabilitating the lease.

[22]

The ridiculously short time periods in new § 362(b)(22) and (l) will collide with the more generous provisions for assumption of a residential lease under § 365.9 There have been many reported decisions from bankruptcy courts holding that a judgment for possession under state law does not necessarily terminate a residential lease for purposes of the power to assume the lease and cure defaults in a Chapter 13 case.10 A Chapter 13 debtor ordinarily has until confirmation to elect whether to assume an unexpired residential lease.11 Chapter 13 debtors can promptly cure defaults and ensure future performance for purposes of lease assumption under § 365.12 If the lessor has a prepetition judgment for possession, there is a pending action for eviction and the debtor is not able to cure the entire prepetition monetary default within 30 days of the petition, the stay will expire and the lessor will race to complete recovery of possession before the debtor can act under § 365.

[23]

Perhaps the Chapter 13 debtor’s best strategy for dealing with new § 362(b)(22) and (l) is to move early in the case to assume the lease notwithstanding that the terms of cure are different from the limitations and requirements in new § 362(l). A bankruptcy court order allowing assumption and cure would be an effective defense to the landlord’s action for possession.


 

1  11 U.S.C. § 362(b)(22). See § 58.9  Real Estate, Landlord and In Rem Exceptions after BAPCPA.

 

2  11 U.S.C. § 362(l)(1).

 

3  11 U.S.C. § 362(l)(5).

 

4  11 U.S.C. § 362(l)(4)(A), (B).

 

5  11 U.S.C. § 362(l)(2).

 

6  See 11 U.S.C. § 362(l)(4), quoted and discussed above in this section.

 

7  11 U.S.C. § 362(l)(3).

 

8  See also § 34.3 [ List of Creditors and Addresses ] § 36.4  List of Creditors and Addresses.

 

9  See §§ 56.1 [ Assume, Reject or Assign Leases, Rental Agreements and Executory Contracts ] § 51.3  Assume, Reject or Assign Leases, Rental Agreements and Executory Contracts and 172.1 [ Debtor Can Assume, Assign or Reject Executory Contracts ] § 102.1  Debtor Can Assume, Assign or Reject Executory Contracts176.2 [ When Purpose of Plan Is to Deal with an Unfavorable Contract or Lease ] § 102.10  When Purpose of Plan Is to Deal with an Unfavorable Contract or Lease.

 

10  See §§ 172.1 [ Debtor Can Assume, Assign or Reject Executory Contracts ] § 102.1  Debtor Can Assume, Assign or Reject Executory Contracts and 173.1 [ Debtor Must Cure Defaults and Assure Future Performance ] § 102.2  Debtor Must Cure Defaults and Assure Future Performance.

 

11  See 11 U.S.C. § 365(d)(2).

 

12  See § 173.1 [ Debtor Must Cure Defaults and Assure Future Performance ] § 102.2  Debtor Must Cure Defaults and Assure Future Performance.