§ 57.4 — Preconfirmation Rights of Landlords and Lessors after BAPCPA
Revised: July 3, 2007
Representing landlords and lessors of personal property will be a lot more interesting after BAPCPA. Lessors of residential property and lessors of personal property have new statutory rights that can be asserted in Chapter 13 cases before confirmation.
Detailed elsewhere,1 a lessor of residential property in which the Chapter 13 debtor is a tenant that obtained a judgment for possession before the petition is free of the automatic stay to continue a pending eviction or unlawful detainer action unless the debtor files with the petition and serves on the lessor a certification that, under nonbankruptcy law, the debtor would be permitted to cure the monetary default that gave rise to the judgment for possession and the debtor deposits with the clerk of the bankruptcy court rent that will become due during the 30 days after the petition.2 If the debtor files the certification and makes the rent deposit, the automatic stay suspends eviction for 30 days. During that 30 days, the debtor must file and serve a second certification that the entire monetary default has been cured.3
To signal these new landlord rights, the debtor must indicate on the Chapter 13 petition that there is a judgment for possession of residential real property, and the language of the certification that must be filed with the petition is prescribed in new § 362(l)(5)(B). BAPCPA requires that “standard forms (electronic and otherwise) used in a bankruptcy proceeding [sic]” shall be amended to reflect the new statements and certifications with respect to residential leases.4
Landlords that have chased the debtor to ground through the state courts only to lose the debtor into a Chapter 13 petition will find much to be happy about in new § 362(b)(22) and (l). If state law would not permit a tenant to cure all monetary defaults that gave rise to a judgment for possession after that judgment was entered, then the debtor will not be able to (truthfully) file the certification under penalty of perjury required by new § 362(l)(1)(A). Absent that certificate, no automatic stay arises from the Chapter 13 petition and the lessor may continue any eviction or unlawful detainer action that is pending at the petition. If the lessor did not have a judgment for possession at the petition, or if there was no eviction or unlawful detainer action pending at the petition, then new § 362(b)(22) and (l) do not apply and the lessor is subject to the automatic stay without regard to whether the debtor files the certificate or deposits rent.
If the debtor files the certification described above and makes the rent deposit, the lessor can object to the certification under new § 362(l)(3)(A). BAPCPA imposes a strict 10-day time period within which the bankruptcy court must hold a hearing after the filing and service of an objection to the debtor’s certification. If the court sustains the lessor’s objection, termination of the stay is immediate under § 362(b)(22), without an order for relief from the stay. If the debtor indicates on the petition that there is a judgment for possession, files the first certification and makes the 30-day rent deposit, but then fails to file the second certification that all monetary defaults have been cured, once again, termination of the stay is immediate under § 362(b)(22) and the clerk of the bankruptcy court must immediately serve on the lessor a certified copy of the docket indicating that the stay is not in effect.5
As you already concluded, the drafters of BAPCPA made a lame show of protecting tenant rights under state law, but the thrust of new § 362(b)(22) and (l) is that lessors of residential property will be free of the automatic stay to continue an eviction action when the lessor has a prepetition judgment for possession. The Chapter 13 debtor can prevent termination of the automatic stay only by noting the judgment for possession on the petition, filing two intricate certifications, making a rent deposit and then paying all of the past-due rent—all within 30 days of the Chapter 13 petition. Even assuming that state law would permit curing default under a residential lease after the judgment for possession, few Chapter 13 debtors will be able to jump through all of the hoops of new § 362(b)(22) and (l) to save a residential lease. New § 362(b)(22) and (l) do not answer the question whether a Chapter 13 debtor has the alternative of assuming the lease through the plan or by motion under § 365 and curing defaults on the different schedule that §§ 365 and 1322(b)(7) would permit.6
A residential landlord who fears endangerment to property or believes there is illegal use of controlled substances on the property can file a certification with the bankruptcy court under new § 362(b)(23), and the automatic stay will terminate with respect to an eviction action unless the debtor objects within 15 days.7 If the debtor fails to respond within 15 days, the automatic stay terminates. If the debtor responds, the bankruptcy court must hold a hearing within 10 days to determine whether the “situation” that gave rise to the lessor’s certification existed or has been remedied.8 If the debtor cannot demonstrate that the “situation” did not exist or has been remedied, the automatic stay terminates without an order for relief and the clerk must immediately serve on the lessor a certified copy of an order upholding the lessor’s certification.9
Lessors of nonresidential real property may be benefited by BAPCPA amendments to § 365(d)(4)(A). When a Chapter 13 debtor is the lessee of nonresidential real property, an unexpired lease will be “deemed rejected” if not assumed within 120 days of the petition.10 The court may extend the 120-day period for 90 additional days.11 The debtor can avoid a deemed rejection by confirming a plan that assumes the unexpired lease before expiration of the 120-day period counted from the petition.12
Lessors of personal property have new rights to preconfirmation payments in Chapter 13 cases. Detailed above,13 new § 1326(a)(1)(B) requires every Chapter 13 debtor to commence payments within 30 days of the petition to a lessor of personal property in an amount scheduled in a lease for that portion of the obligation that becomes due after the petition.14 There will perhaps be some controversy whether the amount “scheduled” means the amount scheduled by the debtor or the amount scheduled in the lease contract. The lessor can move the bankruptcy court under § 1326(a)(3) to modify, increase or reduce the payments required before confirmation. New § 1326(a) does not define the consequences if a Chapter 13 debtor does not commence payments to a lessor of personal property within 30 days of the petition. A lessor that is not receiving payments should consider a motion for relief from the stay or a motion to condition the debtor’s use of the leased property that the debtor commence making the payments required by § 1326(a)(1)(B).
Under § 365(p) as amended by BAPCPA, if a lease of personal property is rejected by a Chapter 13 debtor, the lease exits the estate and the stay under § 362 terminates.15 Chapter 13 debtors sometimes reject leases before confirmation, and BAPCPA eliminates the need for the lessor to also move for relief from the stay when a personal property lease is rejected before confirmation.
Finally, when the Chapter 13 debtor is the lessee of personal property and the lease is not assumed in the confirmed plan, the lease is “deemed rejected” as of the conclusion of the hearing on confirmation and the stay under § 362 and any codebtor stay under § 1301 are terminated.16 A Chapter 13 debtor who assumes a lease of personal property before confirmation should nonetheless include in the plan a provision memorializing that the lease was assumed to avoid the deemed rejection in new § 365(p)(3). Lessors of personal property can rest assured that if the debtor does not assume the lease before confirmation or in the plan as confirmed, the lease is deemed rejected and no stay applies at the conclusion of the hearing on confirmation. There could be confusion when a Chapter 13 debtor assumes a lease of personal property before confirmation but there is no assumption provision in the confirmed plan.
1 See § 382.1 [ Certification and Rent Deposit ] § 36.35 Certification About Eviction Judgment and Rent Deposit.
2 11 U.S.C. § 362(b)(22), (l)(1)(A) and (B).
3 11 U.S.C. § 362(l)(2).
4 11 U.S.C. § 362(l)(5)(C). There is some question whether the drafters of BAPCPA knew the difference between a bankruptcy case and a proceeding within a bankruptcy case.
5 11 U.S.C. § 362(l)(4).
6 See §§ 414.1 [ Preconfirmation Assumption and Rejection of Leases and Executory Contracts ] § 51.4 Preconfirmation Assumption and Rejection of Leases and Executory Contracts after BAPCPA and 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA for further discussion of this issue.
7 11 U.S.C. § 362(b)(23) and (m)(1), discussed in § 431.1 [ Real Estate, Landlord and In Rem Exceptions ] § 58.9 Real Estate, Landlord and In Rem Exceptions after BAPCPA.
8 11 U.S.C. § 362(m)(2).
9 11 U.S.C. § 362(m)(2)(D).
10 11 U.S.C. § 365(d)(4)(A)(i).
11 11 U.S.C. § 362(d)(4)(B)(i).
12 11 U.S.C. § 365(d)(4)(A)(ii).
13 See §§ 401.1 [ Preconfirmation Payments ] § 44.6 Preconfirmation Payments after BAPCPA and 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3 Preconfirmation Adequate Protection Rights after BAPCPA.
14 11 U.S.C. § 362(a)(1)(B), discussed in § 401.1 [ Preconfirmation Payments ] § 44.6 Preconfirmation Payments after BAPCPA.
15 11 U.S.C. § 365(p)(1), discussed further in § 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA.
16 11 U.S.C. § 365(p)(3), discussed in § 495.1 [ Leases and Executory Contracts after BAPCPA ] § 102.3 Leases and Executory Contracts after BAPCPA.