What Happens When a Commercial Tenant Files for Bankruptcy?

 Posted on December 00, 0000 in Commercial Real Estate

One of the biggest headaches of any commercial landlord is finding high quality, reliable tenants. When one of your tenants files for bankruptcy, it can be frustrating and alarming. It is essential that you understand your rights and take action to minimize any losses.

Notice of Bankruptcy

The first the landlord usually hears about a tenant's bankruptcy is when he or she receives a form letter from a bankruptcy court. This piece of paper contains important information about the case. It will have the case number, the dates for any scheduled hearings, and instructions about something called the automatic stay.

When a person or business files for bankruptcy all collections activity against them is frozen. This is called the automatic stay. Even an attempt to collect past due rent is against the automatic stay.

A judge can find you in contempt of court for violating the automatic stay and fine you money.

Protecting Your Rights

Just because your tenant has filed for bankruptcy does not mean they can stay on your property for free. They still have an obligation to keep current on their rent. Depending on the type of bankruptcy they filed they may still have an obligation to pay any past due rent as well.

As a landlord, you can ask the court for relief from the automatic stay. This means you are free to pursue collections activity. If the court grants your request you can attempt to collect past due rent, or if the tenant is in violation of the lease, you can begin the eviction process.

Bankruptcy does not treat all creditors the same way. Some creditors have a higher priority to getting paid. Landlords with a tenant still on the property have priority over many other creditors, including most bank loans and credit card companies.

However, nobody will protect your rights for you. It is up to you to make any claims by following the proper process and meeting the deadlines. The court also will not release you from the automatic stay without you first making a request.

Bankruptcy is a technical process. It is vital that you meet all of the deadlines and vigorously enforce your rights if you want to get paid, or at least minimize any losses.

If you have a tenant who has filed for bankruptcy, or any other commercial real estate questions, you need to contact an experienced and knowledgeable Naperville commercial real estate attorney right away. Call Lindell & Tessitore, P.C. at 630-778-3818 today to schedule an appointment.

Source:

http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/process-bankruptcy-basics