Can We Stop Eviction Through Bankruptcy?
Filing a bankruptcy stops the eviction process in California, but only if it hasn’t gone too far. The topic of today’s blog post is how far is too far.
A very recent appeals court ruling in a case out of the bankruptcy court in Los Angeles, Eden Place v. Perl, tells us where the law on this stands right now. But let me first set the scene about how federal bankruptcy law and California landlord-tenant law work together.
HOW CAN A BANKRUPTCY FILING OVERRIDE CALIFORNIA EVICTION LAW?
Under the U.S. Constitution’s Supremacy Clause, “the laws of the United States . . . shall be the supreme law of the land . . . the law of any State to the contrary notwithstanding.” (See Article VI, Paragraph 2 of the Constitution.)
The Constitution also gives Congress the right and responsibility to “establish . . . uniform laws on the subject of bankruptcies throughout the United States.” (Article I, Section 8, Paragraph 4.)
These two provisions of the Constitution mean that federal bankruptcy laws override state laws.
WHAT ALLOWS FEDERAL BANKRUPTCY LAW TO OVERRIDE ALL STATE LAW?
It doesn’t. Far from it. Although bankruptcy law is federal law, state laws are still involved in bankruptcy in countless ways.
To use the topic of this blog post as an example, federal bankruptcy law says that a landlord’s eviction of a tenant is stopped by the tenant’s bankruptcy filing as long as that tenant still has a right to the property at that point in time. And it’s state law that determines whether or not a tenant still has a right to the property at that crucial time when the bankruptcy case is filed. .
What gives the states this power to determine property rights? The Bill of Rights does.
The 10th Amendment in the Bill of Rights says that “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The Constitution does not give the federal government the power to decide property rights in most contexts. It doesn’t in landlord-tenant disputes.
So, state law governs issues of property—including whether a tenant still has rights in his or her rental home at the particular point in time that he or she files bankruptcy.
WHAT FEDERAL BANKRUPTCY LAW STOPS AN EVICTION?
The bankruptcy law at play here is called the “automatic stay.” (Section 362 of the Bankruptcy Code.) The “automatic stay” stops creditors from pursuing you and your assets as of the moment your bankruptcy case is filed.
Specifically, the “automatic stay” stops “any act to obtain possession of property of the [bankruptcy] estate . . . or to exercise control over property of the [bankruptcy] estate.” The “bankruptcy estate” contains all the rights to property of the person filing a bankruptcy case. This includes all protectable legal or possessory right to the property.
So as long as you still have a right to the rental premises at the time your bankruptcy case is filed, the “automatic stay” stops the landlord from taking away possession or control over the rental.
BEFORE I FILE BANKRUPTCY CAN’T A LANDLORD SIMPLY PHYSICALLY KICK OR LOCK ME OUT?
Not in California. A residential landlord in California must virtually always use the court eviction process to evict a tenant. It is illegal for landlords to evict tenants on their own without going to court. As explained in the California Courts’ webpage on eviction, a landlord CAN’T:
- Physically remove the tenant;
- Get rid of the tenant’s personal property;
- Lock the tenant out;
- Cut off the utilities, like water or electricity;
- Remove outside windows or doors; or
- Change the locks.
But the court eviction process is a very quick one.
WHAT IF THE LANDLORD IS ABOUT TO FILE OR HAS JUST FILED AN “UNLAWFUL DETAINER” LAWSUIT?
The “automatic stay” statute also says that the filing of a bankruptcy case stops “the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor.”
To do a residential eviction in California a landlord must file an “unlawful detainer” proceeding in Superior Court. (The term means that the tenant is allegedly unlawfully detaining the premises from the landlord.)
If your landlord has not yet filed an unlawful detainer summons and complaint before you file your bankruptcy case, the automatic stay prevents the landlord from starting the proceeding.
If the unlawful detainer proceeding had already been filed, its continuation is stopped by the bankruptcy as long as it’s not too late.
IS THERE AN EXCEPTION TO THE “AUTOMATIC STAY” ONCE THE LANDLORD WINS THE UNLAWFUL DETAINER PROCEEDING?
Arguably you don’t need an exception. As I said a few paragraphs ago, the automatic stay only stops the landlord from taking away possession or control over the rental IF you still have a right to the rental premises at the point in time your bankruptcy case is filed. Once you’ve lost that right, the “automatic stay” no longer applies.
Nevertheless, in an effort maybe to clarify this, Congress inserted an exception to the automatic stay in its last major overhaul of the Bankruptcy Code in 2005. This exception says that the automatic stay does not apply to a residential landlord’s “continuation of any eviction, unlawful detainer action, or similar proceeding” in which it “has obtained before the date of filing of the bankruptcy petition, a judgment for possession of such property” against the tenant. (See Section 362(b)(22) of the Bankruptcy Code.)
So it seems that once a landlord gets a judgment for possession in its favor in the unlawful detainer proceeding, it’s too late to stop the eviction with a bankruptcy filing.
HOW LONG DOES IT TAKE UNDER CALIFORNIA LAW FOR A LANDLORD TO GET A JUDGMENT OF POSSESSION?
It does not take very long at all. Compared to conventional lawsuits unlawful detainer cases move at lightning speed.
Although the landlord has to follow some very specific steps, your required response times are extremely short. As a result, the time from when you become late on your rent payment to when it’s too late to stop an eviction by filing bankruptcy could be as short as only a couple of weeks! You might have somewhat more time then that but it mostly just depends on how aggressive your landlord decides to be.
DOES CALIFORNIA LAW REQUIRE A LANDLORD TO DO ANYTHING BEFORE FILING AN “UNLAWFUL DETAINER” PROCEEDING?
Yes, but not much. Before you can be evicted for non-payment of rent in California, your landlord must give you a 3-day notice to pay or vacate the rental. Yes, only 3 days.
In certain circumstances the landlord arguably doesn’t even need to give you that short notice. The main such situation is if your fixed-term lease has expired and isn’t being renewed. Also if your right to the rental premises is directly based on your employment, and that employment is terminated, you’re not entitled even to this short 3-day notice.
Assuming you’re entitled to the notice, if you are behind on rent payments the notice must give you the 3-day opportunity to catch up on the rent. But if the landlord believes that you are violating your rental agreement by committing a “nuisance on” or a “waste of” the rental premises, you may not get an opportunity to cure the problem.
(If you’re NOT behind on the rent payments but the landlord nevertheless wants to end your month-to-month or other open-ended lease agreement, you must be given a 30- or 60-day notice of termination of tenancy, depending on how long you’ve lived there.)
WHAT ELSE MUST THE LANDLORD DO BEFORE GETTING A JUDGMENT OF POSSESSION?
Immediately after the notice period expires, the landlord can file its unlawful detainer proceeding in California Superior Court. It files a summons and complaint, and serves it on you.
If you are personally served (the summons and complaint are physically given to you), then you have only 5 days to respond. When counting those 5 days you include weekend days, but not court holidays. If the fifth day falls on a weekend or holiday, the deadline to respond is the end of the next non-weekend/non-holiday day.
If you are served in part by mail, you’re considered served 10 days after the post-marked date, with your response deadline 5 days after that.
If you don’t respond in a legally recognized way by the deadline, the landlord can get a judgment of unlawful detainer, which is a court determination that the landlord is legally entitled to possession of the premises. At that point it can get the court to direct your local sheriff to enforce that judgment through a Writ of Execution or Writ of Possession.
WHAT IF I DO RESPOND TO THE UNLAWFUL DETAINER COMPLAINT AND SUMMONS?
You may be able to buy more time. But there are many considerations and risks in filing an answer to the complaint or filing some other kind of motion or pleading. Getting into all these possibilities goes beyond the scope of this blog post. You need to talk with a landlord-tenant attorney to determine if you have any defenses to the allegations in the unlawful detainer complaint, or if you have any other options to pursue.
WOULD MY EVICTION BE STOPPED BY FILING BANKRUPTCY AFTER THE JUDGMENT OF UNLAWFUL DETAINER IS ENTERED BUT BEFORE THE SHERIFF REMOVES ME?
That’s a good question. It was unresolved in California until just a few months ago.
In fact there’s a good argument that the answer to this question, until a few months ago was “yes.” There were a number of bankruptcy court decisions in California saying that a debtor is entitled to the protections of the automatic stay as to his residence as long as he or she had at least a “possessory interest” in the rental premises.
That is, under California law a tenant filing bankruptcy had a “possessory interest in the real property at issue by virtue of his or her physical occupancy.” The tenant’s “mere physical possession of [a rented] premises after writ of possession had issued in favor of landlord in unlawful detainer action is an equitable interest in property, protected by the automatic stay.” (See p. 15 of Eden Place, LLC v. Perl (In re Perl), a 2014 opinion of the local Bankruptcy Appellate Panel.)
This Perl opinion arose out of a Chapter 13 “adjustment of debts” bankruptcy case filed in the Los Angeles Division of the bankruptcy court. That case was filed 9 days after the property owner, Eden Place, had gotten an unlawful detainer judgment against Sholem Perl through the California Superior Court for Los Angeles County. It included a judgment of possession of the single-family duplex at issue. A writ of possession was issued by the court to the Los Angeles County Sheriff a few days later, 6 days before Perl’s Chapter 13 filing.
In spite of Perl’s legal efforts to stop the eviction in both state court and in bankruptcy court, the Los Angeles County Sheriff evicted him a week after he filed his Chapter 13 case.
That same day Perl filed an emergency motion to enforce the automatic stay. The bankruptcy court in Los Angeles had a hearing on that motion the next day, and ruled in favor of Perl that the eviction violated the automatic stay and was void.
Eden Place appealed to the Bankruptcy Appellate Panel (“BAP”), a special court of appeals for bankruptcy cases. The 3-judge panel unanimously agreed with the bankruptcy court by also ruling in favor of Perl. It cited a number of bankruptcy court and appeals court opinions in deciding that “Perl’s physical occupation of the Residence conferred a possessory interest under California law that was protected by the automatic stay.” The BAP “conclude[d] that Eden Place violated the automatic stay when it did not advise the Sheriff to desist in its efforts to lock out and evict Perl from the Residence.” (See pp. 19-20 of the BAP’s opinion.)
Eden Place appealed again, this time to the Court of Appeals for the 9th Circuit, which hears appeals from all federal courts within its jurisdiction (covering 9 western states including California)
This Court of Appeals panel of 3 judges ruled 2-1 in the landlord’s favor, overturning the decisions of both the bankruptcy court and the BAP. The majority opinion reviewed the earlier opinions that the bankruptcy court and the BAP had relied on and said it was “not persuaded that those cases engaged in the proper analysis.” Eden Place v. Perl (In re Perl), p. 17.
The Court of Appeals majority opinion main argument was that California’s unlawful detainer proceedings . . . are expressly designed to determine who has superior title to the property, including the right to immediate possession. As a result, the prevailing party in the unlawful detainer proceeding under [California eviction statute] has “better title” than the evicted resident. The conclusion that the occupying resident retains an equitable possessory interest is inconsistent with [California eviction statute], which contemplates a final and binding adjudication of legal title and rights of immediate possession.
Eden Place v. Perl (In re Perl), p. 19 (citations omitted).
So the majority concluded that the unlawful detainer judgment and writ of possession entered pursuant to California [eviction law] bestowed legal title and all rights of possession upon Eden Place. Thus, at the time of the filing of the bankruptcy petition, Perl had been completely divested of all legal and equitable possessory rights that would otherwise be protected by the automatic stay. Consequently, the Sheriff’s lockout did not violate the automatic stay because no legal or equitable interests in the property remained . . . .
Eden Place v. Perl (In re Perl), p. 19 (citations omitted).
SO AFTER THIS NEW 9TH CIRCUIT OPINION, WHAT IS THE LAST POINT IN TIME TO STOP AN EVICTION?
The last point to stop an eviction through a bankruptcy filing is after you’ve been served with the unlawful detainer summons and complaint, but before the time has expired to file a formal response. That’s only 5 days after being served in person or 15 days after the postmark date if you’re served by mail.
Otherwise the landlord will submit a proposed unlawful detainer judgment and writ of possession to the California Superior Court, and it will be too late.
Of course common sense says you should see a bankruptcy attorney way before this. This way you can review your options and make good decisions without being under severe time pressure.
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